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401(k) contribution limits for 2021

A 401(k) plan enables business owners and their employees to save for retirement. Get the details on the following frequently asked questions:

  • Max 401(k) contributions
  • 2021 contribution limits
  • Roth 401(k) limits
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How many employees do you have?

Just me and/or my business partner/spouse

Annual 401(k) limits for HCEs

Salary deferral limit

Under the 401(k) contribution rules, business owners and employees may deduct a portion of their pay and have it deposited into their 401(k) account as a pre-tax contribution. The amount contributed to the 401(k) will not be included in taxable income until the dollars are distributed from the plan – hopefully during their retirement years. If a 401(k) allows Roth contributions, some or all of these contributions may be made as after-tax Roth contributions. No matter which type of contribution is made, there is one maximum 401(k) limit per person–$19,500 for 2021.

If an individual defers more than $19,500 for 2021, the business owner must distribute the excess amount plus earnings to the individual. This is a taxable distribution (unless the salary deferrals were made as Roth contributions).

401(k) catch-up

Almost all 401(k) plans accept “catch-up contributions.” These are salary deferral contributions made by owners and employees who are age 50 or older, who maybe need to “catch up” on their retirement savings.  In 2021, an additional salary deferral of up to $6,500 can be made as a catch-up contribution on top of the maximum annual salary deferral.

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Nondiscrimination test limit

Business owners and highly compensated employees may not be permitted to contribute the full salary contribution amount each year

If lower paid employees in the 401(k) plan are not making significant contributions. 401(k) plans must pass certain nondiscrimination tests each year to demonstrate that the plan is not discriminating against lower compensated employees.

These tests limit the:

  • Percentage of compensation that HCEs can contribute to the 401(k) based on the average percentage contributed by the non-highly paid employees
  • Amount of employer matching contributions (and any non-Roth after-tax employee contributions) that may be contributed for highly paid employees.

If a 401(k) plan fails these tests, the business owner must either return a portion of the HCEs’ contributions or make additional contributions for the lower paid employees.

Compensation limits

To prevent disproportionately large contributions for HCEs, the 401(k) plan rules place a limit on the amount of compensation that may be considered when calculating an employer matching contribution or other contribution that is based on a percentage of compensation.

For 2021, this limit is $290,000.

For example, assume you earn $300,000 in 2021. The 401(k) plan includes an employer matching contribution of up to 3% of your compensation. Under these “compensation cap” rules, your employer could make a matching contribution of up to $8,700 (3% x the compensation cap of $290,000)–not $9,000 (3% x your full compensation of $300,000).

Strategies for HCEs and business owners

Business owners and HCEs may be able to increase the amount they can contribute to a 401(k) plan through one or more of these strategies.

401(k) catch-up contributions

Catch-up contributions are made after an individual reaches the $19,500 (for 2021) annual salary contribution limit or a plan-imposed limit (e.g., a failed nondiscrimination test). Because catch-up contributions are not included in nondiscrimination testing, even if you cannot make the full $19,500 salary contribution because of limits imposed by a plan test, you will still be able to make a catch-up contribution, up to $6,500, if you are age 50 or older.

Increase lower-paid employees’ savings rates through education

If lower paid employees increase their saving rates, HCEs and business owners will be able to make larger contributions. To encourage employees to save more in the 401(k), employers may want to engage financial advisors or other service providers to educate employees about the benefits of saving in a 401(k) and helping workers calculate how much they need to save to reach their financial goals in retirement.

Adopt a Safe Harbor 401(k) Plan

If you adopt a Safe Harbor 401(k) plan, it will be deemed to pass these nondiscrimination tests, meaning the owner and other HCEs can contribute any amount up to the annual salary contribution limit, plus catch-up contributions if eligible, without worrying about the contribution rate of lower paid employees. Offering a Safe Harbor 401(k) plan may also help improve participation and savings rates for all employees.

2021 Retirement Plan Limits

It can be difficult to stay up to date with annual changes in 401(k) limits, along with all the other kinds of retirement vehicles you may be saving in. That’s where the experts at Ubiquity come in. Remember every plan is designed differently, so it’s important to refer to your Plan Document for any compensation or other applicable limits.

401(k) and 403(b) individual contribution limits (IRS 402(g) Limit)

Age 49 and under


Age 50 and older

Additional $6,500

Highly Compensated and Key Employee definitions and limits

Key Employee Officer Compensation


Highly Compensated Employee


Annual Compensation Limit


Roth and Traditional IRA contribution limits

Age 49 and under

Up to $6,000 (must have earned income)

Age 50 and older

Additional $1,000

Traditional IRA modified adjusted gross income limit for partial deductibility



Married – Filing joint returns


Married – Filing separately


Non-active participant spouse


Roth IRA modified adjusted gross income phase-out ranges



Married – Filing joint returns


Married – Filing separately


Simple IRA contribution limits

Age 49 and under


Age 50 and older


Health Savings Accounts (HSA) contribution limits

Individual (employer + employee)


Family (employer + employee)


Age 55 or older**

Additional $1,000

**Catch-up contributions can be made at any time during the year in which the HSA participant turns 55.

If you need more detailed guidance, see IRS Notice 2020-79.

Learn more

If you’re a small business owner and need a 401(k) plan for yourself and your company, only Ubiquity offers flat-fee plans plus free expert advice. We’ll fully customize your 401(k) to meet the specific needs of your small business.

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© 2021 Ubiquity Retirement + Savings
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44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357

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© 2021 Ubiquity Retirement + Savings
Privacy Policy
44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357

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