4043 / How does the Section 415 limit affect the excludable amount for a tax sheltered annuity?
The limit on contributions and benefits applicable to qualified pension plans applies to tax sheltered annuities ( Q 4042).1 For the purpose of this limit, tax sheltered annuities generally will be treated as defined contribution plans.2 Thus, they are subject to a limit of the lesser of 100 percent of the participant’s compensation (defined in Q 4044) or the applicable dollar limit. The applicable dollar limit for 2025 is $70,000.3 This limit is indexed for inflation in increments of $1,000 ( Q 3868).4
The limit is on the amount of annual additions that may be made in any limitation year to a participant’s account.
Annual additions are employer contributions, including salary reduction amounts and employee after-tax contributions. Excess elective deferrals ( Q 4047) that are correctly distributed under the regulations are not included as annual additions.5 Excess matching employer contributions ( Q 4038) are included, however, even if the excess is corrected by a distribution from the plan.6