Key Takeaways
- 2025 401(k) deferral limit: $23,500 + $7,500 catch-up (age 50-59/64+) or $11,250 super catch-up (ages 60-63)
- 2025 Annual additions limit (IRC 415(c)): lesser of 100% compensation or $70,000
- 2025 Defined benefit annual limit (IRC 415(b)): $280,000 or 100% of 3-highest consecutive years average
- 2025 Covered compensation limit: $350,000 for calculating employer contributions
- Self-employed reduced contribution rate = Plan Rate / (1 + Plan Rate) due to circular calculation
Contribution and Benefit Limits
IRC Section 415 establishes the maximum limits on contributions and benefits for qualified retirement plans. These limits are adjusted annually for inflation and apply to both defined contribution and defined benefit plans. Understanding these limits is essential for retirement plan design, employee benefit maximization, and CFP exam success.
2025 Contribution and Benefit Limits Summary
| Limit Type | 2025 Amount | IRC Section |
|---|---|---|
| Defined Contribution Plans | ||
| Employee Elective Deferral (401(k), 403(b), 457) | $23,500 | 402(g) |
| Catch-Up (Ages 50-59 and 64+) | $7,500 | 414(v) |
| Super Catch-Up (Ages 60-63) | $11,250 | 414(v) |
| Annual Additions Limit | $70,000 | 415(c) |
| Defined Benefit Plans | ||
| Annual Benefit Limit | $280,000 | 415(b) |
| Compensation Limits | ||
| Maximum Covered Compensation | $350,000 | 401(a)(17) |
| HCE Threshold (Prior Year Compensation) | $160,000 | 414(q) |
| Key Employee Officer Compensation | $230,000 | 416(i) |
| Other Limits | ||
| SIMPLE IRA Deferral | $16,500 | 408(p) |
| SIMPLE Catch-Up (Age 50+) | $3,500 | 414(v) |
| IRA Contribution | $7,000 | 219 |
| IRA Catch-Up (Age 50+) | $1,000 | 219 |
IRC Section 415(c): Annual Additions Limit
The annual additions limit caps total contributions to a defined contribution plan participant's account each year.
What Counts as Annual Additions
Annual additions include:
- Employer contributions (matching and profit sharing)
- Employee elective deferrals (pre-tax and Roth)
- Forfeitures allocated to the participant's account
- After-tax employee contributions (if permitted)
The 2025 Annual Additions Formula
The maximum annual addition is the lesser of:
- 100% of the participant's compensation, OR
- $70,000 (2025 limit)
Important: Catch-up contributions do NOT count against the $70,000 annual additions limit. They are added on top.
Maximum Total Deferral Examples (2025)
| Participant Age | Employee Deferral | Catch-Up | Total Deferral | Plus Employer to Max |
|---|---|---|---|---|
| Under 50 | $23,500 | $0 | $23,500 | $46,500 to reach $70,000 |
| 50-59 | $23,500 | $7,500 | $31,000 | $46,500 to reach $77,500 |
| 60-63 | $23,500 | $11,250 | $34,750 | $46,500 to reach $81,250 |
| 64+ | $23,500 | $7,500 | $31,000 | $46,500 to reach $77,500 |
Example: Sarah, age 61, works for a company with a 401(k) profit sharing plan. She earns $200,000.
- Employee deferral: $23,500
- Super catch-up (age 60-63): $11,250
- Maximum employer contribution: $70,000 - $23,500 = $46,500
- Total possible: $81,250 ($23,500 + $11,250 + $46,500)
Super Catch-Up Contributions (Ages 60-63)
SECURE 2.0 introduced enhanced catch-up contributions for participants ages 60, 61, 62, and 63 beginning in 2025.
Super Catch-Up Rules
| Feature | Details |
|---|---|
| Eligible Ages | 60, 61, 62, and 63 (attained by end of calendar year) |
| 2025 Amount | Greater of $10,000 or 150% of regular catch-up = $11,250 |
| Age 64+ | Reverts to standard $7,500 catch-up |
| Plan Requirement | Plans with age 50+ catch-up not required to offer super catch-up |
| Not Subject to 415(c) | Does not count toward $70,000 annual additions limit |
Roth Catch-Up Requirement (Starting 2026)
Beginning in 2026, SECURE 2.0 requires participants earning over $145,000 in FICA wages (prior year) to make catch-up contributions on a Roth basis only. If a plan does not offer Roth contributions, these high earners cannot make catch-up contributions.
IRC Section 415(b): Defined Benefit Limits
The maximum annual benefit payable from a defined benefit pension plan is the lesser of:
- $280,000 (2025), OR
- 100% of the participant's average compensation for the 3 highest consecutive years
Key DB Limit Adjustments
| Factor | Effect |
|---|---|
| Early retirement (before 62) | Actuarial reduction to limit |
| Late retirement (after 65) | Actuarial increase to limit |
| Less than 10 years of service | Limit reduced by 10% per year of service shortfall |
| Less than 10 years of participation | Limit reduced by 10% per year of participation shortfall |
Covered Compensation Limit
The covered compensation limit ($350,000 for 2025) caps the amount of an employee's compensation that can be considered for:
- Calculating employer contributions
- Applying plan benefit formulas
- Nondiscrimination testing
Example: An executive earning $500,000 can only have $350,000 considered for plan purposes. If the profit sharing plan contributes 10% of compensation:
- Contribution = $350,000 x 10% = $35,000 (not $50,000)
Self-Employed Contribution Calculation
Self-employed individuals face a unique challenge: their deductible contribution reduces their net self-employment income, which in turn reduces the contribution. This creates a circular calculation requiring a reduced rate formula.
The Reduced Rate Formula
Self-Employed Contribution Rate = Plan Rate / (1 + Plan Rate)
Example: A sole proprietor wants to contribute 25% of compensation to a SEP-IRA. Net self-employment earnings after the deduction for 1/2 self-employment tax = $200,000.
Step 1: Calculate reduced rate
- 25% / (1 + 25%) = 25% / 1.25 = 20%
Step 2: Apply reduced rate
- $200,000 x 20% = $40,000 maximum contribution
Common Reduced Rates
| Plan Contribution Rate | Reduced Self-Employed Rate |
|---|---|
| 25% | 20% (25/125) |
| 20% | 16.67% (20/120) |
| 15% | 13.04% (15/115) |
| 10% | 9.09% (10/110) |
How Limits Interact
Understanding how contribution limits work together is critical for exam questions.
Scenario: Employee with Multiple Plans
If an employee participates in multiple 401(k) plans (e.g., main job + side business), the $23,500 elective deferral limit applies across all plans combined, but each plan has its own $70,000 annual additions limit.
Scenario: Both DB and DC Plans
When an employer sponsors both defined benefit and defined contribution plans:
- Each plan has separate 415 limits
- The old combined limit (IRC 415(e)) was repealed in 2000
- Employer deduction is limited to 25% of covered compensation for DC plans
On the CFP Exam
Expect questions on:
- Calculating maximum contributions for various ages and income levels
- Applying the self-employed reduced rate formula
- Identifying what counts (and doesn't count) toward annual additions
- Understanding the 3-highest-consecutive-years test for DB limits
- Knowing the super catch-up eligibility ages (60-63) and amount ($11,250)
Marcus, age 62, earns $180,000 and participates in his employer's 401(k) profit sharing plan. The employer contributes 15% of compensation. What is the maximum total that can be added to Marcus's account in 2025?
A self-employed consultant has net self-employment income of $150,000 (after the deduction for 1/2 self-employment tax). She wants to maximize her SEP-IRA contribution at the 25% plan rate. What is her maximum deductible contribution?
Which of the following statements about SECURE 2.0's super catch-up contributions is CORRECT?