Employers that administer qualified retirement plans are subject to regulations enforced by the Internal Revenue Service (IRS).
Within those regulations, the IRS has stated that each year plans are subject to the following contribution limits:
Figure 1: Qualified retirement plan contribution limits according to IRS regulations
| IRS plan limits: Calendar year |
2025 (Est) |
2024 | 2023 | 2022 | 2021 | 2020 | 2019 |
|---|---|---|---|---|---|---|---|
| Deferral limit [402(g)(1)] |
$23,500 | $23,000 | $22,500 | $20,500 | $19,500 | $19,500 | $19,000 |
| Catch-up limits ages 50-59 [414(v)(2)(B)(i)] |
$7,500 | $7,500 | $7,500 | $6,500 | $6,500 | $6,500 | $6,000 |
| Catch-up limits ages 60-63 [414(v)(2)(B)(i)] |
$11,250 | N/A | N/A | N/A | N/A | N/A | N/A |
| DC annual addition limit [415(c)(1)(A)] |
$70,000 | $69,000 | $66,000 | $61,000 | $58,000 | $57,000 | $56,000 |
| Annual compensation cap [401(a)(17)] |
$350,000 | $345,000 | $330,000 | $305,000 | $290,000 | $285,000 | $280,000 |
| Taxable wage base |
$176,100 | $168,600 | $160,200 | $147,000 | $142,800 | $137,700 | $132,900 |
| DB annual limit [415(b)(1)(A)] |
$280,000 | $275,000 | $265,000 | $245,000 | $230,000 | $230,000 | $225,000 |
| 457(b) contribution limit [457(e)(15)] |
$23,500 | $23,000 | $22,500 | $20,500 | $19,500 | $19,500 | $19,000 |
| HCE threshold [414(q)(1)(B)] |
$160,000 | $155,000 | $150,000 | $135,000 | $130,000 | $130,000 | $125,000 |
| SIMPLE 401(k) limit [408(p)(2)(E)] |
$16,500 | $16,000 | $15,500 | $14,000 | $13,500 | $13,500 | $13,000 |
| SIMPLE 401(k) catch-up ages 50-59 [414(v)(2)(B)(ii)] |
$3,500 | $3,500 | $3,500 | $3,000 | $3,000 | $3,000 | $3,000 |
| SIMPLE 401(k) catch-up ages 60-63 [414(v)(2)(B)(ii)] |
$5,250 | N/A | N/A | N/A | N/A | N/A | N/A |
| Key employee [416(i)(1)(A)(i)] |
$230,000 | $220,000 | $215,000 | $200,000 | $185,000 | $185,000 | $180,000 |
Contributions subject to the above limits are as follows:
- Employee contributions – pre-tax, Roth, and after-tax
- Employer contributions – match, profit-sharing, nonelective, and forfeitures
Contributions not subject to the above limits are as follows:
- Employee Contributions – rollovers, loan repayments
Plan sponsors may establish additional plan-specific limits, provided these do not exceed the government-mandated maximums outlined above.
Testing and timing of qualified retirement plan limits
Testing plan limits is an essential process that ensures qualified plans adhere to the annual IRS guidelines for each contribution made by employees and employers. Both parties can take advantage of the retirement savings tax benefits while avoiding penalties or plan failures for exceeding the allowed contributions. Plan limits vary depending on plan type and can involve careful examination of several factors, including income and age.
The following steps should be taken to determine if participants have exceeded plan limits:
- Establish all limits as defined in the plan document and the governmental regulations.
- Define what period the plan limits apply to (plan year, calendar year, or fiscal year).
- Confirm whether any participant contributions exceed the limits.
- Aggregate any employers who may be considered a controlled group or affiliated service.
Timing of 402(g) limits:
- For a plan to comply with the 402(g) deferral limits, individualized employee contributions cannot exceed the 402(g) limit of $23,500 plus $7,500 in catch-up contributions for employees ages 50-59 or $11,250 in catch-up contributions for employees ages 60-63 (as indexed) each calendar year.
- Excess deferrals must be distributed back to participants by April 15th of the following year, regardless of whether the plan is a fiscal plan year.
- Taxation of deferrals applies in the year deferred, and the earnings are taxable in the year of distribution. Withholding of 20%, early distribution penalty of 10%, and spousal consent requirements do not apply to distributions made by April 15th.
- Deferrals not distributed by April 15th will be taxed in the years of contribution and distribution.
- Distributions of excess deferrals should be reported on 1099-R forms for the years in which they were distributed.
- Actual Deferral Percentage (ADP) tests must include any excess deferrals distributed to highly compensated employees (HCEs) in the year the amounts were contributed to the plan. Excess deferrals distributed to non-highly compensated employees (NHCEs) are not required to be included in the ADP test provided that all contributions were made with one employer.
- The plan document may set a deadline for employees to notify employers of any failures that may have occurred outside of the plan to ensure timely processing. For example, someone who deferred to an unaffiliated plan may exceed the individual limit outside of this qualified plan.
Timing of 415(c) limits:
- For a plan to comply with the 415(c) annual addition limits, confirmation needs to be made that all individual employee and employer contributions do not exceed the 415(c) limit of $70,000 plus $7,500 in catch-up contributions for employees ages 50-59 or $11,250 in catch-up contributions for employees ages 60-63 (as indexed) each limitation year. Plan sponsors may define the limitation year as the calendar year, plan year, or another twelve months of their choosing. If the limitation year is not defined in the plan document, a calendar year is the default definition.
- Unmatched employee contributions should be distributed followed by matched employee contributions to the affected participants. All distributions should include any applicable earnings.
- If excess failures remain, employer contributions should be forfeited until there are no excess failures.
- Distributions of excess annual additions should be reported on 1099-R forms for the years in which they are distributed.
Correcting qualified retirement plan limit failures
When possible, employers should implement systems within their payroll software and/or recordkeeping platforms that report when a plan limit has been exceeded so they can take immediate action. When plan limit failures are not immediately discovered, there are programs available to assist employers in making the necessary corrections.
The IRS Employee Plans Compliance Resolution System (EPCRS) permits any size employer that sponsors a retirement plan to identify and correct most plan failures. There are two programs available for plans that want to correct failures to plan contribution limits:
- Self-Correction Program (SCP) – Under SCP, employers can correct certain plan failures without contacting the IRS or paying a user fee. Revenue Procedure 2021-30 sets predefined corrective options for a number of plan failures. If the plan has set practices and procedures to correct 402(g) and 415(c) failures, there will be no additional fees, and the IRS does not need to be contacted. Under Secure 2.0, a specific timeframe in which insignificant and significant failures need to be corrected is no longer a requirement.
- Voluntary Correction Program (VCP) – Under VCP, plans submit for a written approval from the IRS stating that the failures were properly corrected. Plans may use the predefined corrective options outlined in Revenue Procedure 2021-30 or they may request an alternative correction not already defined. Plans may choose this option when they would like to receive the IRS acknowledgement or secure a correction not already proposed by the IRS. The employer would need to use the pay.gov website and pay a user fee based on their amount of plan assets. Additional schedules will need to be filed to the IRS as part of the approval process therefore, this is generally a more expensive correction method due to the administrative costs involved. However, this may enable a more cost-effective fix depending on the failure.
A plan may enter into a third correction program if the error is discovered by the IRS rather than the plan sponsor.
- Audit Closing Agreement Correction Program (Audit CAP) – Under Audit CAP, correction of failure is not eligible for SCP or VCP. This program is used when failures are uncovered during an IRS audit. At this stage, the employer and the IRS must establish a closing agreement detailing what corrective actions and sanctions will be required. The resolution for participants would be similar to that described under SCP or VCP; however, the plan’s ability to negotiate a more cost effective fix is generally eliminated. Additionally, the IRS generally imposes sanctions for the fixes required on behalf of any plan participants.
Additional information from the IRS on plan limit failures and how they can be corrected can be found here: https://www.milliman.com/en/Retirement-and-Benefits/401k-compliance-corrections.