3760 / What is the limit on elective deferrals to employer-sponsored plans?

The IRC limits the total amount of “elective deferrals” any individual can exclude from income in a year. Elective deferrals, for this purpose, generally include all salary deferral contributions to all 401(k) plans ( Q 3752 through Q 3779), 403(b) tax sheltered annuities ( Q 4047), SAR-SEPs ( Q 3705), and SIMPLE IRAs ( Q 3706).¹ Contributions under a Roth 401(k) feature ( Q 3779) are subject to the same elective deferral limit as other 401(k) contributions.²

The elective deferral limit for traditional and safe harbor 401(k) plans and for Section 403(b) tax sheltered annuities is $23,500 in 2025 ($23,000 in 2024, $22,500 in 2023, $20,500 in 2022, $19,500 in 2020-2021, as indexed).³

Elective deferral contributions to SIMPLE IRAs ( Q 3706) and SIMPLE 401(k) plans ( Q 3778) are subject to a limit of $16,500 in 2025 ($16,000 in 2024, $15,500 in 2023, $14,000 in 2022, $13,500 in 2020-2021).⁴ The limit on elective deferrals to tax sheltered annuity plans may be further increased in the case of certain long term employees of certain organizations ( Q 4047).⁵

The IRC Section 402(g)(1)(B) elective deferral limit is not required to be coordinated with the limit on Section 457 plans. As a result, an individual participating in both a 401(k) plan (or 403(b) plan) and a Section 457 plan in 2025 may defer as much as $47,500 ( Q 3584).⁶

Matching contributions made on behalf of self-employed individuals generally are not treated as elective deferrals for purposes of IRC Section 402(g)(1)(B). This treatment does not apply to qualified matching contributions that are treated as elective contributions for purposes of the ADP test ( Q 3802).⁷

Excess deferrals. Amounts deferred in excess of the ceiling (i.e., excess deferrals) are not excludable and, therefore, must be included in the individual’s gross income for the taxable year.⁸ In the case of participants age 50 or over, catch-up contributions permitted under IRC Section 414(v) are not treated as excess elective deferrals under IRC Section 402(g)(1)(C) ( Q 3761).⁹

If any amount is included in an individual’s income under these rules and plan language permits distributions of excess deferrals, the individual, prior to the first April 15 following the close of the individual’s taxable year, may allocate the excess deferrals among the plans under which the deferrals were made and the plans may distribute the excess deferrals (including any income allocated thereto, provided the plan uses a reasonable method of allocating income) not later than the first April 15 after the close of the plan’s taxable year (the April 15 deadline is not extended even if the taxpayer takes advantage of an automatic filing extension).¹⁰ The amount of excess deferrals distributed under these rules is not included in income a second time as a distribution, but any income on the excess deferral is treated as earned and received, and includable in income in the taxable year in which distributed.¹¹ If the plan so provides, distributions of excess deferrals may be made during the taxable year of the deferral if the individual and the plan designate the distribution as an excess deferral and the correcting distribution is made after the date on which the plan received the excess deferral.¹²

Excess amounts that are not timely distributed are not included in the cost basis of plan distributions, even though they have previously been included in income.¹³ Thus, such amounts will be subjected to a second tax when distributed in the future. Any corrective distribution of less than the entire amount of the excess deferral is treated as a pro rata distribution of excess deferrals and income.¹⁴

See Q 3808 for rules on coordinating distributions of excess contributions and excess deferrals.¹⁵