Reap What You’ve Sown – Make It A Great Harvest!
By Stacey Holder
Harvesting is defined as “the process or period of gathering in crops.”
In 2020, the IRS limited 401K harvesting to $19,500 (with an additional $6,500 for individuals 50 and over). For 2021, that limit is not expected to increase, as in the previous year. This does not mean plan participants will not have a great harvest at retirement time, but it does keep at the forefront of our minds how a little still goes a long way.
To help you dig through the weeds of the IRS postings, a SHRM article by Stephen Miller (2020) provides a side-by-side comparison of this year and next year’s “Defined Contribution Limits.” Even though there is no change for 2021, Miller emphasizes “HR professionals should still convey to employees their plan contribution limits for next year.” The author also shares “Not all plan participants will be able to fund their 401(k) accounts up to the maximum, of course, but the contribution cap is a goal they should keep in mind and may encourage those who can defer extra dollars for retirement savings to do so.”
Planning for a successful harvest does not come without some pitfalls and/or pests. To help employees in their future planning, employers can provide a good “plot of land” for sowing into retirement accounts. The IRS defines the employer action as “Automatic contribution arrangements [which] allow employers to ‘enroll’ eligible employees in the retirement plan automatically unless the employee affirmatively elects not to participate.” Be a proactive employer and contribute part of your employees’ wages to the retirement plan. In doing so, you strengthen your employer-employee relationship and reap a good harvest, both with retaining valuable employees and lowering your tax burden with a company-wide 401K program.
While the company-sponsored plans may not see any changes in the coming year, there are changes on the horizon for IRAs, as noted in the latest announcement by the IRS. The more you sow, the more that will grow – and the greater your harvest will be!
Please reach out to JLM HR Consulting for more information on how to further assist you with contribution limits or changes regarding IRA's. Visit our website at www.jlm-hrconsulting.com or give us a call at 204-408-5071!
Resources:
https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/2021-irs-401k-contribution-limits.aspx
https://www.irs.gov/newsroom/income-ranges-for-determining-ira-eligibility-change-for-2021
https://www.irs.gov/retirement-plans/faqs-auto-enrollment-what-is-an-automatic-contribution-arrangement-in-a-retirement-plan
https://www.zenefits.com/workest/how-does-offering-a-401k-benefit-an-employer/