3728 / How are Section 415 limits applied to defined contribution plans?
Annual additions include employee contributions, employer contributions, and forfeitures. The annual additions to a participant’s account (or all such accounts aggregated, if the employer has more than one defined contribution plan) must not exceed the lesser of 100 percent of the participant’s compensation or $70,000 (for 2025, $69,000 for 2024, $66,000 for 2023, $61,000 in 2022, $58,000 in 2021, $57,000 in 2020).1 This limit is indexed for inflation in increments of $1,000.2
Planning Point: When an HSA is available (see Q 393 for a discussion of the HSA eligibility rules), it can allow an individual to defer additional pre-tax amounts above the 401(k) contribution limits to the HSA, grow the HSA funds tax-free and, to the extent not used for valid healthcare expenses, eventually withdraw the amounts tax-free once the individual has reached age 65 (amounts used for valid healthcare expenses can always be withdrawn from the HSA tax-free). Moreover, Congress is discussing reducing the limits on the use of HSAs so that the option may become available to more individuals as a supplement to 401(k) deferrals for employees who are above the 401(k) limit.
Limitations applicable when an individual is a participant in one or more elective deferral plans (including 401(k) plans, SIMPLE IRAs, SAR-SEPs, and tax sheltered annuities) are explained in Q 3760. For general rules affecting the application of the Section 415 limits, see Q 3868; for defined benefit plan limits, see Q 3719.The regulations referenced throughout this question were issued April 5, 2007 and are effective for limitation years beginning after June 30, 2007.3
The following amounts are not annual additions:
(1) Catch-up contributions ( Q 3761)
(2) Payments made to restore losses resulting from a breach of fiduciary duty