The Puerto Rico Treasury Department recently issued Circular Letter 21-01 (Spanish version) announcing the 2021 benefit limits for defined benefit (DB) and defined contribution (DC) retirement plans qualified under the Puerto Rico tax code. These limits restrict contributions made to and benefits paid from these plans, as well as the amount of compensation that can be taken into account for qualified retirement plan purposes.
The qualified retirement plan limits are effective for the taxable year beginning on or after January 1, 2021.
Puerto Rico qualified retirement plan limits, 2020 vs. 2021
| Puerto Rico qualified plan limits | 2020 | 2021 |
|---|---|---|
| Maximum recognizable compensation | $285,000 | $290,000 |
| Highly compensated employee (HCE)1 | $130,000 | $130,000 |
| Annual benefit limit (DB) | $230,000 | $230,000 |
| Annual contribution limit (DC) | $57,000 | $58,000 |
| Limit on pre-tax elective deferrals | ||
Qualified only in Puerto Rico |
||
|
- Contribution limit
|
$15,000 | $15,000 |
|
- Catch-up contribution limit (age 50 or older)
|
$1,500 | $1,500 |
Dual qualified in Puerto Rico and U.S. |
||
|
- Contribution limit
|
$19,500 | $19,500 |
|
- Catch-up contribution limit (age 50 or older)
|
$1,500 | $1,500 |
| Limit on after-tax contributions: 10% of the participant’s maximum recognizable compensation for all the years of participation in the retirement plan | ||
Going forward
Sponsors of dual-qualified plans and plans qualified solely in Puerto Rico should update their administrative processes and systems to reflect the 2021 limits. These sponsors should also review their administrative procedures to ensure the limits are being monitored.
Endnote
1 Early in 2017, the Puerto Rico Internal Revenue Code was amended to implement a fixed $150,000 compensation threshold for HCEs, rather than linking the threshold to a cost-of-living-adjustment (COLA) dollar amount (as in the U.S. Internal Revenue Code). In December 2018, however, Puerto Rico amended the tax code to, among other things, reinstate the COLA threshold. Note, however, that the change adopted in 2017 that excluded “officers” from the definition of HCE remains in effect.
Download
| Title | File Type | File Size |
|---|---|---|
| Insider February 2021 | .3 MB |
