IRC 415 Limits on Retirement Benefits and Contributions

Internal Revenue Code Section 415 sets two ceilings on tax-qualified retirement plans. For 2026, a defined contribution plan cannot allocate more than the lesser of $72,000 or 100% of your compensation to your account in a single year, and a defined benefit plan cannot pay you an annual benefit greater than the lesser of $290,000 or 100% of your average compensation during your three highest-paid consecutive years.¹ The IRC Section 415 limits exist to stop highly compensated employees from sheltering unlimited income inside a qualified plan. A plan that breaches them risks losing its qualified status, which triggers immediate tax consequences for every participant.

The Defined Contribution Ceiling

Defined contribution plans include 401(k)s, profit-sharing plans, money purchase plans, and 403(b) arrangements. Section 415(c) caps the “annual addition” credited to any one participant’s account at the lesser of $72,000 or 100% of that participant’s compensation for 2026.¹ The dual test bites where you’d expect. Someone earning $55,000 can receive at most $55,000 in total annual additions, because the compensation percentage runs out first.

Annual additions cover everything credited to your account during the plan’s limitation year: your own elective deferrals (pre-tax, Roth, or after-tax), all employer contributions (matching, profit-sharing, and non-elective), and any forfeitures reallocated to you from other participants.² The $72,000 is the outer boundary. Inside it sits the Section 402(g) elective deferral limit, which for 2026 is $24,500 and applies only to your personal deferrals.³ Employer contributions can carry you the rest of the way to $72,000.

The measurement window is the plan’s “limitation year,” which defaults to the calendar year unless the plan document specifies a different 12-month period.⁴ Most plans use the calendar year. If yours runs on a fiscal year, the 415 test tracks that period instead.

The Defined Benefit Ceiling

Traditional pensions work in the opposite direction. Section 415(b) does not limit contributions going in; it limits the annual benefit coming out. For 2026, the maximum annual benefit is the lesser of $290,000 or 100% of the participant’s average compensation during their three highest-paid consecutive years, measured as a straight life annuity beginning at Social Security retirement age.¹

When the benefit takes a different form or begins at a different age, the dollar ceiling gets adjusted. Starting the pension before Social Security retirement age reduces the $290,000 figure to reflect the longer payment stream. Delaying past that age allows a modest increase. The adjustments use actuarial assumptions prescribed by Treasury regulations, and they are one reason defined benefit plans carry more administrative complexity than 401(k)s.

There is no longer a combined ceiling when someone participates in both a defined benefit and a defined contribution plan sponsored by the same employer. Congress repealed the old combined limit (former Section 415(e)) effective in 2000. You can receive the full permitted amount under each type of plan at the same time. The practical brake is the employer’s deduction limit under Section 404(a)(7), which can make funding both plans to the maximum costly for the company even where the law allows it.

Catch-Up Contributions Sit Outside the 415 Cap

Catch-up contributions are excluded from the annual addition limit under Section 415(c), which is the entire reason they function as extra savings for older workers.⁵ If they counted toward the $72,000 ceiling, they would produce no additional room.

For 2026, the catch-up limit for participants aged 50 and older is $8,000 in 401(k), 403(b), and governmental 457(b) plans. Participants who turn 60, 61, 62, or 63 during 2026 get an enhanced catch-up of $11,250 under SECURE 2.0.³ A 62-year-old could defer $35,750 in personal contributions ($24,500 regular plus $11,250 enhanced catch-up), and with employer contributions layered on top, total annual additions can run well above the $72,000 standard cap. At age 64, the participant drops back to the $8,000 standard catch-up. Participants under 50 get no catch-up at all.

Mandatory Roth Catch-Ups for High Earners

Beginning January 1, 2026, SECURE 2.0 Section 603 requires that catch-up contributions be made on a Roth basis if the participant’s prior-year FICA wages exceeded a statutory threshold.⁶ The base threshold was $145,000 (indexed for inflation), and preliminary guidance from several plan administrators has placed the relevant figure at $150,000 in 2025 wages for determining 2026 treatment. If you exceeded that level, any 2026 catch-up you make must go to a Roth account. You still get the catch-up, but the upfront deduction disappears.

What Counts as Compensation

The 415 limits reference “compensation” throughout, and what counts as compensation has its own rulebook. Treasury regulations provide three safe harbor definitions a plan can adopt:⁷

Section 3401(a) wages: amounts subject to federal income tax withholding, plus elective deferrals under cafeteria plans, transportation fringe benefits, and retirement plan salary reductions.
Wages reported for tax purposes: Section 3401(a) wages plus any other payments the employer must report to the employee under federal information-reporting rules. This is the broadest definition.
Simplified compensation: basic items of taxable remuneration, with specific categories carved out by the regulations.

The plan document has to specify which definition it uses, and applying the wrong one is a common qualification failure. All three definitions generally exclude employer contributions to the plan itself and distributions from deferred compensation arrangements.

The Separate Compensation Cap

Regardless of the definition chosen, Section 401(a)(17) sets a separate ceiling on how much of any individual’s pay can enter contribution or benefit formulas. For 2026, that ceiling is $360,000.¹ Earn $500,000 and the plan ignores everything above $360,000 when it runs percentage-based calculations. The cap mostly affects defined benefit accruals and employer contribution formulas tied to a percentage of pay.

Self-Employed Participants

If you are self-employed, the statute substitutes “earned income” for compensation.² Earned income under Section 401(c)(2) is your net self-employment earnings after subtracting the deductible half of self-employment tax and your own retirement plan contribution. Because the contribution reduces the income base used to compute the contribution, the math is circular, and a self-employed person’s effective contribution rate is always lower than an employee’s for the same gross income. That is where most solo 401(k) and SEP planning errors happen.

Aggregation Across Plans and Employers

Section 415 does not look at plans one at a time. All defined contribution plans maintained by the same employer count as a single plan for testing, and all defined benefit plans are aggregated separately.⁸ An employer that runs both a 401(k) and a profit-sharing plan must keep any one participant’s combined annual additions across both under $72,000.

The rule reaches further when businesses share ownership. Companies that form a controlled group under Sections 414(b) and (c) are treated as a single employer. For Section 415, the ownership threshold is more than 50%, stricter than the 80% threshold used elsewhere in the Code.⁹ Own 55% of two corporations that each sponsor a 401(k), and the combined annual additions from both plans are subject to a single $72,000 cap.

Where 403(b) Plans Fit

A 403(b) annuity contract is generally treated as controlled by the individual participant, not the employer, so it usually is not aggregated with a 401(a) defined contribution plan. The exception is when the participant controls the employer sponsoring the 401(a) plan. Then contributions to the 403(b) and the 401(a) plan must each satisfy the 415(c) limit independently and also on a combined basis.¹⁰ This catches physicians who participate in a hospital’s 403(b) while also owning a medical practice with its own 401(k).

Fixing an Excess Contribution

When annual additions run past the 415(c) limit in a defined contribution plan, the plan has to correct the error or risk disqualification. The IRS’s Employee Plans Compliance Resolution System prescribes a specific ordering:¹¹

Distribute unmatched elective deferrals (adjusted for earnings) back to the participant.
If excess remains, distribute matched elective deferrals and forfeit the related employer matching contributions.
If excess still remains, forfeit employer profit-sharing or non-elective contributions.

The corrective distribution shows up on Form 1099-R as taxable income in the year distributed. The 10% early distribution penalty under Section 72(t) does not apply, and the participant cannot roll the corrective distribution into an IRA or another qualified plan.¹¹ Forfeited employer contributions go into an unallocated suspense account and reduce employer contributions in future years.

A 415(b) violation in a defined benefit plan requires reducing the participant’s accrued benefit to the maximum permissible level, typically by amending the plan or adjusting actuarial factors. Minor or promptly corrected failures can be handled through the Self-Correction Program. More serious or long-running problems require a Voluntary Correction Program filing with the IRS and a compliance fee.

Going Above 415 Through Non-Qualified Plans

Section 415 caps qualified plans only. Employers who want to promise retirement benefits beyond the ceiling turn to non-qualified arrangements, and the two main categories are excess benefit plans and top-hat plans.

An excess benefit plan exists solely to provide benefits above the Section 415 limits. ERISA Section 3(36) exempts these plans from nearly all ERISA requirements, including funding, vesting, and fiduciary rules.¹² The plan has to exist for that purpose alone. If it also makes up for the Section 401(a)(17) compensation cap or any other qualification limit, it stops being a pure excess benefit plan.

Most employers land on top-hat plans instead: unfunded deferred compensation arrangements maintained primarily for a select group of management or highly compensated employees. Top-hat plans are exempt from ERISA’s funding and vesting rules but must be unfunded, meaning the participant’s right to future payments is no better than an unsecured creditor’s claim. Employers sometimes use a rabbi trust to informally set money aside, but those assets remain reachable by the company’s creditors in bankruptcy. That unsecured status is the fundamental trade: a larger retirement benefit against the risk that the employer cannot pay.

The 2026 Numbers

The IRS adjusts most Section 415 dollar limits each fall for the following year based on Consumer Price Index changes. Adjustments are rounded to fixed increments ($1,000 for defined contribution limits, $5,000 for defined benefit limits), so small inflation changes sometimes produce no increase.¹³ The key 2026 figures:

Defined contribution annual addition: $72,000
Defined benefit annual benefit: $290,000
Elective deferral limit under 402(g): $24,500
Annual compensation cap under 401(a)(17): $360,000
Catch-up contribution (age 50 and older): $8,000
Enhanced catch-up (ages 60 through 63): $11,250

These figures come from IRS Notice 2025-67.¹ Plan administrators need to update payroll and recordkeeping systems each year when the IRS releases new numbers, typically in late October or November. Applying the prior year’s limits to the current year is exactly the kind of administrative error that produces 415 failures and forced corrective distributions.

1
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living
2
Office of the Law Revision Counsel. 26 US Code 415 – Limitations on Benefits and Contribution Under Qualified Plans
3
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
4
eCFR. 26 CFR 1.415(j)-1 – Limitation Year
5
eCFR. 26 CFR 1.414(v)-1 – Catch-Up Contributions
6
Thrift Savings Plan. SECURE Act 2.0, Section 603 – Impacts to Thrift Savings Plan
7
eCFR. 26 CFR 1.415(c)-2 – Compensation
8
eCFR. 26 CFR 1.415(f)-1 – Aggregating Plans
9
Internal Revenue Service. Controlled and Affiliated Service Groups
10
Internal Revenue Service. 403(b) Plan Application of IRC Section 415(c) When a 403(b) Plan is Aggregated with a Section 401(a) Defined Contribution Plan
11
Internal Revenue Service. Fixing Common Plan Mistakes – Failure to Limit Contributions for a Participant
12
Legal Information Institute. 29 US Code 1002(36) – Excess Benefit Plan Definition
13
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions