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Depending on the plan, the employer and employee may both make contributions, but the amounts vary Thumbnail

Depending on the plan, the employer and employee may both make contributions, but the amounts vary

There are two limits that apply to contributions annually:

"1. A limit on employee elective salary deferrals. Salary deferrals are contributions an employee makes, in lieu of salary, to certain retirement plans:

  • 401(k) plans
  • 403(b) plans
  • SARSEP IRA plans (Salary Reduction Simplified Employee Pension Plans)
  • SIMPLE IRA plans (Savings Incentive Match Plans for Employees)
     

2. An overall limit on contributions to a participant’s account. The limit applies to the total of:

  • Elective deferrals (but not catch-up contributions) 
  • Employer matching contributions 
  • Employer nonelective contributions 
  • Allocations of forfeitures

Deferral limits for 401(k) plans 

  • The limit on employee elective deferrals (for traditional and safe harbor plans) is:
  • $19,500 in 2021, subject to cost-of-living adjustments

Generally, you aggregate all elective deferrals you made to all plans in which you participate to determine if you have exceeded these limits. If a plan participant’s elective deferrals are more than the annual limit, find out how you can correct this plan mistake.

Deferral limits for a SIMPLE 401(k) and IRA plans

The limit on employee elective deferrals to a SIMPLE 401(k) and IRA plans is:

  • $13,500 in 2021
  • This amount may be increased in future years for cost-of-living adjustments

Plan-based restrictions on elective deferrals

  • Your plan's terms may impose a lower limit on elective deferrals
  • If you are a manager, owner, or highly compensated employee, your plan might need to limit your deferrals to pass nondiscrimination tests

Catch-up contributions for those age 50 and over

If permitted by the 401(k) plan, participants age 50 or over at the end of the calendar year can also make catch-up contributions. You may contribute additional elective salary deferrals of:

  • $6,500 in 2021 to traditional and safe harbor 401(k) plans
  • $3,000 in 2021 to SIMPLE 401(k) and IRA plans
  • These amounts are subject to cost-of-living adjustments

You don’t need to be “behind” in your plan contributions in order to be eligible to make these additional elective deferrals."

Source: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

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