What Is the IRS 401(a)(17) Compensation Limit?

For 2026, the 401(a)(17) compensation limit is $360,000. That’s the maximum amount of any single employee’s pay that a tax-qualified retirement plan can count when calculating contributions or benefits.¹ The rule comes from Internal Revenue Code Section 401(a)(17), which sets a $200,000 statutory base indexed annually for inflation and rounded to the nearest $5,000.² For 2025 the figure was $350,000; for 2026 it moves to $360,000.

The purpose is nondiscrimination. Without a ceiling on countable pay, a plan could funnel large employer contributions to executives while giving rank-and-file workers relatively little. A plan that uses compensation above the cap risks losing its tax-qualified status, which would make employer contributions nondeductible and expose employees to immediate taxation on vested balances.

How the Limit Works in Different Plans

The same $360,000 cap applies across nearly every kind of qualified plan, but its practical effect differs.

401(k) and Other Defined Contribution Plans

In a 401(k), profit-sharing, or other defined contribution plan, the limit caps the compensation used to figure employer contributions. If you earn $500,000 in 2026, only $360,000 counts in the plan formula.³ A 5% employer match would be calculated on $360,000, producing $18,000, rather than on the full $500,000 (which would produce $25,000). The remaining $140,000 is invisible to the plan formula.

A separate rule under Section 415(c) caps total annual additions to any one participant’s account at $72,000 for 2026.⁴ The 401(a)(17) limit narrows the pay figure that goes into the formula; the 415 limit caps the result. Both apply.

Defined Benefit (Pension) Plans

Pension plans promise a retirement income calculated from a formula that usually involves years of service and average compensation. The 401(a)(17) limit prevents the formula from counting more than $360,000 of pay in any year. A separate Section 415(b) rule caps the actual annual benefit payable at $290,000 for 2026.⁴

SEP and SIMPLE Plans

The same $360,000 ceiling applies to Simplified Employee Pension (SEP) and SIMPLE IRA plans. Employer contributions to a SEP are figured as a percentage of each employee’s pay, capped at $360,000. SIMPLE plans use the cap the same way when figuring employer matching or nonelective contributions.⁵

Your Own 401(k) Deferrals Are Governed by a Different Limit

This is where high earners often get confused. Your own salary deferrals into a 401(k) are not automatically cut off when your year-to-date pay crosses $360,000. Employee elective deferrals fall under Section 402(g), which caps them at $24,500 for 2026.⁶ Most plans let you keep deferring from every paycheck until you hit that annual deferral cap, regardless of your cumulative compensation.⁷

Some plans, though, are written to stop deferrals once compensation reaches the annual limit. If your plan is set up that way, you could lose deferral capacity late in the year. Check your summary plan description or ask the plan administrator. The employer match is a separate matter: it’s always calculated only on compensation up to $360,000, so high earners often see their match max out well before December.⁷

What Counts as Compensation

The plan document has to define “compensation,” and the definition must satisfy Section 414(s).⁸ Most plans pick one of three safe-harbor definitions that automatically pass nondiscrimination testing:

W-2 wages, meaning the amount in Box 1 of your Form W-2, which covers salary, bonuses, and tips but leaves out certain fringe benefits.
Wages subject to income tax withholding under Section 3401(a), which tracks W-2 wages closely but can differ at the margins.
Section 415 safe-harbor compensation, a broader measure that pulls in gross wages, professional fees, and pre-tax salary deferrals such as 401(k) contributions and cafeteria plan elections.

The choice matters because it decides whether bonuses, overtime, and taxable fringe benefits are pulled into the number that eventually hits the $360,000 ceiling. Whatever definition the plan uses has to be applied uniformly to every participant.

Self-Employed Contributors

If you’re self-employed and contribute to a solo 401(k) or SEP, calculating your plan compensation is more involved. You start with net earnings from self-employment, then subtract the deductible portion of your self-employment tax and your own plan contribution.⁹ Since the contribution depends on the compensation and the compensation depends on the contribution, the IRS provides a reduced contribution rate formula in Publication 560 that solves both in one step. The $360,000 cap still applies to the resulting plan compensation figure, so it effectively limits your contribution even when your net earnings run much higher.

Situations That Change the Math

Short Plan Years

When a plan has a year shorter than twelve months, the compensation limit must be prorated. Multiply $360,000 by the number of months in the short plan year, then divide by twelve. A seven-month transition period, for example, produces a limit of $210,000. Proration is not required when an individual employee simply joins or leaves mid-year and the plan year itself remains twelve months.³

Controlled Groups and Affiliated Service Groups

When related companies form a controlled group or affiliated service group, the IRS treats them as one employer for retirement plan purposes. If you draw pay from two companies in the same controlled group, your combined compensation is subject to a single $360,000 limit. If you work for two genuinely unrelated employers that participate in a multiple employer plan, each employer applies the limit separately to its own pay.

Grandfathered Governmental Plans

Certain state and local government plans that already applied a 401(a)(17) limit with cost-of-living adjustments before July 1, 1993, use a higher ceiling. For 2026, eligible participants in those grandfathered governmental plans can have up to $535,000 of compensation counted.¹ The exception is narrow and applies only to plans already using the higher figure before the 1993 change.

Recent Compensation Limits

Prior years matter for verifying older calculations and catching retroactive errors:⁴

2026: $360,000
2025: $350,000
2024: $345,000
2023: $330,000
2022: $305,000

The larger jumps from 2022 through 2024 reflect the elevated inflation of that period. In calmer years the limit often holds flat or rises by a single $5,000 increment.

When a Plan Exceeds the Limit

Using compensation above the cap to figure contributions is an operational failure that can threaten the plan’s qualified status. The fix is to remove the excess contributions and any investment gains attributable to them from the affected participant’s account. Plan sponsors can correct these mistakes through the IRS Employee Plans Compliance Resolution System (EPCRS), which offers self-correction for many failures and a Voluntary Correction Program for those requiring a formal IRS submission.¹⁰ Catching the error internally is far cheaper than having the IRS find it on audit, so annual compliance checks that match contribution calculations against the current year’s compensation limit are the practical safeguard.

1
Internal Revenue Service. IRS Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
2
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
3
Internal Revenue Service. Treatment of 401(a)(17) Limitation in Defined Contribution Plan in a Short Plan Year
4
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions
5
Internal Revenue Service. Publication 560 – Retirement Plans for Small Business
6
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
7
Internal Revenue Service. Deferrals and Matching When Compensation Exceeds the Annual Limit
8
Internal Revenue Service. Compensation Definition in Safe Harbor 401(k) Plans
9
Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction
10
Internal Revenue Service. Correcting Plan Errors