The Internal Revenue Service (IRS) recently updated dollar limits for benefits and contributions under various retirement plans. The changes, which accompany cost-of-living adjustments, are effective as of 2021.
Employees’ ability to make deductible contributions to their traditional Individual Retirement Accounts (IRAs) is subject to caps, after which deductions are phased out. For single taxpayers covered by a workplace retirement plan, the 2021 income phase-out range will be $66,000 to $76,000 — an increase from the 2020 phase-out range of $65,000 to $75,000.
The 2021 phase-out range for contributions to Roth IRAs and the income limit for claiming the Retirement Savings Contribution Credit will also increase.
Additionally, maximum annual out-of-pocket limits for individual and family coverage under high-deductible health plans (HDHPs) will increase (by $100 and $200, respectively), as will individual and family health savings account (HSA) annual contribution limits (by $50 and $100, respectively).
Other increases affect contribution limits in relation to 401(k)s and other qualified plans. However, note that some limits will remain unchanged for 2021. For example, the maximum employee elective deferral for 401(k) contributions holds steady at $19,500, as does the $2,750 limit on employee contributions to health flexible spending accounts (health FSAs).
These changes are worth knowing for HR compliance purposes. Further details can be found on the IRS website.
