Updated Qualified Retirement Plan Limits For 2025 & 2026: Key Adjustments For Elective Deferrals & Catch-Up Contributions
- SiekmannCo
- Nov 26
- 4 min read
Elective Deferrals: Enhancing Employee Savings Opportunities
The Internal Revenue Service (IRS) annually adjusts qualified retirement plan limits to account for cost-of-living increases, ensuring that retirement savings vehicles remain aligned with economic conditions. These adjustments, based on changes in the Consumer Price Index (CPI), impact a wide array of plans, including 401(k)s, 403(b)s, 457 plans, IRAs, and SIMPLE accounts. For 2025 and 2026, the IRS has released updated figures that provide employees with enhanced opportunities for tax-advantaged savings, particularly through higher elective deferrals and expanded catch-up contributions for older workers.
These limits, detailed in IRS Notice 2024-80 for 2025 and IRS Notice 2025-67 for 2026, reflect modest inflation-driven increases. Employers sponsoring qualified retirement plans must update plan documents, payroll systems, and participant communications to comply, while individuals can leverage these changes to maximize retirement readiness.
Elective deferrals refer to the pre-tax or Roth contributions employees make to employer-sponsored plans like 401(k)s, 403(b)s, and governmental 457 plans. These deferrals reduce taxable income in the year contributed and grow tax-deferred until withdrawal.
Of Key Qualified Retirement Plan Limits
The following table summarizes the primary qualified retirement plan limits for 2025 and 2026, highlighting changes that support greater contributions amid rising living costs.
Limit | 2026 | 2025 | Change |
|---|---|---|---|
Elective Deferrals (401(k), 403(b), 457 Plans) | $24,500 | $23,500 | $1,000 increase |
Catch-Up Contributions (Ages 50+) for Most Plans | $8,000 ($11,250 for ages 60-63) | $7,500 ($11,250 for ages 60-63) | $500 increase (no change for ages 60-63) |
Annual Defined Contribution Limit | $72,000 | $70,000 | $2,000 increase |
Annual Defined Benefit Limit | $290,000 | $280,000 | $10,000 increase |
Annual Compensation Limit | $360,000 | $350,000 | $10,000 increase |
Highly Compensated Employee Threshold | $160,000 | $160,000 | No change |
IRA Contributions | $7,500 | $7,000 | $500 increase |
IRA Catch-Up Contributions (Ages 50+) | $1,100 | $1,000 | $100 increase |
SIMPLE Contributions | $17,000 ($18,100 for certain plans) | $16,500 ($17,600 for certain plans) | $500 increase ($500 for certain plans) |
SIMPLE Catch-Up Contributions (Ages 50+) | $4,000 ($5,250 for ages 60-63; $3,850 for certain plans) | $3,500 ($5,250 for ages 60-63; $3,850 for certain plans) | $500 increase (no change for ages 60-63 or certain plans) |
These figures represent the maximum amounts that can be contributed or accrued on a tax-deferred basis, helping to offset inflation's impact on retirement savings.
2025 Elective Deferral Limits
The limit increases to $23,500, up from $23,000 in 2024, allowing participants to shelter more income from taxes.
This adjustment applies uniformly to the Thrift Savings Plan for federal employees.
2026 Elective Deferral Limits
Rising to $24,500, this $1,000 increase from 2025 provides further flexibility for workers to build nest eggs amid economic pressures.
For deferred compensation plans under Section 457 for state and local governments or tax-exempt organizations, the limit also climbs to $24,500.
Employers should note that exceeding these elective deferral limits can result in excess contributions, potentially triggering taxes and penalties. Participants coordinating multiple plans must aggregate deferrals to stay within bounds.
Catch-Up Contributions: Boosting Savings For Older Workers
Catch-up contributions enable individuals aged 50 and older to contribute additional amounts beyond standard elective deferrals, addressing the need for accelerated savings as retirement approaches. Provisions under the SECURE 2.0 Act introduce even higher limits for those aged 60-63, recognizing the "peak earning years" for many.
Standard Catch-Up Contributions
In 2025: $7,500 for most plans (e.g., 401(k), 403(b)), allowing total contributions up to $31,000 for ages 50+.
In 2026: Increases to $8,000, pushing the total to $32,500 for eligible participants.
Enhanced Catch-Up for Ages 60-63
Remains $11,250 in both 2025 and 2026 for applicable plans, enabling totals up to $34,750 in 2025 and $35,750 in 2026.
This SECURE 2.0 provision applies to plans other than SIMPLE or SEP IRAs.
IRA and SIMPLE Plan Catch-Ups
IRAs: $1,000 in 2025, rising to $1,100 in 2026 for ages 50+.
SIMPLE Plans: $3,500 in 2025 ($5,250 for ages 60-63), increasing to $4,000 in 2026 (no change for ages 60-63).
Certain SIMPLE plans allow higher base contributions and catch-ups, up to $18,100 and $3,850, respectively, in 2026.
Additionally, for high-wage earners (over $145,000 in 2025, $150,000 in 2026), catch-ups in non-SIMPLE plans must be designated as Roth contributions, promoting after-tax savings strategies.
Additional Limits & Considerations For Qualified Retirement Plans
Beyond elective deferrals and catch-up contributions, other thresholds influence plan design and compliance:
Annual Compensation Limit: Caps the salary considered for contributions at $350,000 in 2025 and $360,000 in 2026, affecting highly paid employees.
Defined Contribution Limit: Maximum employer plus employee contributions rise to $70,000 in 2025 and $72,000 in 2026.
Defined Benefit Limit: Annual benefits increase to $280,000 in 2025 and $290,000 in 2026.
Highly Compensated Employee Threshold: Stays at $160,000 for both years, used for nondiscrimination testing.
Phase-Out Ranges: For IRAs and Roth IRAs, income limits for deductions and contributions are adjusted upward, expanding eligibility.
These qualified retirement plan limits are crucial for avoiding compliance issues, such as top-heavy plan designations or failed ADP/ACP tests. Employers may benefit from reviewing plan features like automatic enrollment or matching contributions to encourage participation.
Implications For Employers & Participants
With these increases, employees can defer more income tax-efficiently, potentially reducing current tax liabilities while bolstering long-term security. For businesses, updating systems by the start of each tax year is essential to prevent errors. The SECURE 2.0 Act's enhancements, such as emergency savings accounts linked to pensions (up to $2,600 in 2026), add further tools for financial wellness.
Staying informed on these annual adjustments ensures optimal use of qualified retirement plans to attract and retain talent.
For expert guidance on implementing these qualified retirement plan limits, optimizing elective deferrals, or managing catch-up contributions in your benefits package, contact The Siekmann Company. Our specialists offer tailored retirement and employee benefits assistance to help your organization thrive.