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Puerto Rico 2021 retirement plan limits

Retirement
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By Stephen Douglas , William (Bill) Kalten and Lourdes Martinez | February 9, 2021

Sponsors of dual-qualified plans and plans qualified solely in Puerto Rico should update their processes and procedures to reflect 2021 limits.

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

The 2021 maximum recognizable compensation, annual benefit limit (DB), contribution limit (DC) and limits on pre-tax elective deferrals compared with 2020 limits
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.

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Authors

Senior Director, Retirement and Executive Compensation

Senior Director, Retirement and Executive Compensation

Associate Director, Retirement

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