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

Earnings attributable to distributed elective deferrals that are not themselves distributed
will be treated as an employer contribution for the limitation year in which the distributed
elective deferral was made.⁷ A contribution made during a tax year is considered to be made on the last day of the limitation year that ends in or with the tax year.⁸

A limitation year is the calendar year or any other twelve-month period that may be elected by the plan in the plan document. Contributions in excess of the overall limit are discussed in Q 4046.