Income and Assets · Adjustments to Income

Retirement contribution limits and deductibility

Four limits operate on the same taxpayer at once, and confusing them is the characteristic error. The elective deferral limit is per person across all plans. The annual addition limit is per employer and counts everything that lands in the account. The IRA limit is separate again and is capped by compensation. And a compensation cap limits the pay any plan may take into account. Only the first is the figure people quote.

The rule

The IRA deduction is capped by earnings, not just by the dollar figure. The deduction may not exceed the lesser of the deductible amount or the compensation includible in the individual’s gross income for the year (IRC § 219(b)(1)(A), (B)). A taxpayer with 3,000 dollars of earnings may contribute 3,000 dollars, whatever the annual limit says.

And the deadline ignores extensions. A contribution made on account of a taxable year is deemed made on the last day of that year if it is made not later than the time prescribed by law for filing the return for that year — not including extensions (IRC § 219(f)(3)). This is the one retirement deadline that an extension does not move.

Active participation shrinks the deduction, not the contribution. Where the individual or their spouse is an active participant in an employer plan for any part of a plan year ending with or within the taxable year, the dollar limitations are reduced proportionately across a phase-out range (IRC § 219(g)(1), (2)). Note what triggers it: any part of a plan year, so a single month of coverage counts for the whole year.

Employer SEP contributions are outside § 219 entirely. The section does not apply to an employer contribution to a simplified employee pension (IRC § 219(b)(2)), so such a contribution neither consumes nor is measured by the individual’s IRA limit.

Elective deferrals are limited per person. Section 402(g)(1) caps the exclusion for elective deferrals for the individual’s taxable year across every plan they participate in — the limit belongs to the person, not to the employer, which is why two jobs in one year can produce an excess that neither payroll system sees.

Catch-up contributions come in three tiers now. The ordinary age 50 amount under § 414(v)(2)(B), a higher amount for individuals attaining age 60, 61, 62 or 63 during the year under § 414(v)(2)(E), and separate, smaller figures throughout for SIMPLE arrangements.

And above a wage threshold the catch-up must be Roth. Section 414(v)(7)(A) requires catch-up contributions to an applicable employer plan — other than a plan described in § 408(k) or (p) — to be designated Roth contributions where the individual’s wages from the employer for the preceding calendar year exceeded the threshold.

The annual addition limit is per employer and counts everything. Contributions and other additions may not exceed the lesser of the dollar figure or 100 percent of the participant’s compensation (IRC § 415(c)(1)), an annual addition being the sum of employer contributions, employee contributions and forfeitures (§ 415(c)(2)).

A compensation cap sits over all of it. Only a limited amount of annual compensation may be taken into account under §§ 401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii) — which caps a percentage-based employer contribution regardless of actual pay.

Current figures

How it works in practice

Take the limits in the order they bind. For an IRA, compensation first, then the dollar limit, then the § 219(g) phase-out if anyone in the couple is an active participant. A non-working spouse is reached through the spousal rule, which borrows the working spouse’s compensation but not their limit.

For an employer plan, the deferral limit and the annual addition limit answer different questions. A participant who defers the maximum has not exhausted the annual addition limit — employer matching, profit-sharing and forfeitures all count toward the larger figure, and the two ceilings can both be live in the same account. Catch-up contributions sit outside the annual addition limit, which is why a participant aged 50 or over can exceed it by the catch-up amount.

Watch two things in 2026 specifically. The catch-up tier for ages 60 to 63 is measured by the age attained during the year, so it appears and disappears without the participant doing anything. And the Roth catch-up requirement in § 414(v)(7)(A) looks at the preceding year’s wages from that employer, so a high earner in 2025 loses the pre-tax catch-up in 2026 even if 2026 pay is lower.

Finally, remember that the § 219(f)(3) deadline is unique. Every other funding decision on this page can be made up to the extended due date or later; the IRA contribution cannot.

How this has changed

Catch-up contributions acquired an age band and a Roth requirement. Section 414(v)(2)(E) gives a higher amount to individuals attaining age 60, 61, 62 or 63 during the year — a four-year window that opens and closes automatically — and § 414(v)(7)(A) requires the catch-up to be a designated Roth contribution where the previous year’s wages from that employer exceeded the threshold, except in a § 408(k) or (p) arrangement. Neither existed before SECURE 2.0, and material predating it describes a single catch-up figure available pre-tax to everyone.

The 2026 adjustments moved most figures but not all of them. Notice 2025-67 increased the elective deferral limit, the age 50 catch-up, the annual addition limit, the SIMPLE limits, the compensation cap and the SEP threshold, while the age 60 to 63 catch-up amounts — for both ordinary plans and SIMPLE arrangements — remained unchanged. A table that assumes everything rose will be wrong in two places.

The statutory text is unusable on its own, more so here than almost anywhere. Sections 415(c)(1)(A) and 415(b)(1)(A) still carry the figures enacted decades ago, as does § 402(g)(1). Every operative number on this topic comes from the annual Notice, and the Code supplies only the mechanism and the rounding rules.

The § 219(g) phase-out ranges are indexed and the two spouses are treated differently. Where one spouse is an active participant and the other is not, separate and much higher ranges apply to the non-participant — a distinction that survives every recent amendment and is still commonly missed.

Exam focus

Expect the compensation test with a low-earning taxpayer, where the answer is their earnings rather than the dollar limit.

Expect the contribution deadline with an extended return in the facts. The extension does not help.

Expect two employers and the deferral limit, or one employer and the annual addition limit, testing whether you know which is which.

Expect a catch-up question turning on age attained during the year, or on the previous year’s wages for the Roth requirement.

Check yourself

1. A taxpayer with 4,000 dollars of wages and no other earnings wants to contribute the full IRA amount. May they?

Answer: No. IRC § 219(b)(1)(B) caps the deduction at the compensation includible in gross income, so 4,000 dollars is the maximum regardless of the annual dollar limit.

2. A taxpayer extends their return to October. Until when may an IRA contribution be made for the prior year?

Answer: The unextended due date. IRC § 219(f)(3) deems a contribution made on the last day of the preceding year only if made by the time prescribed for filing that year’s return, not including extensions.

3. An employee defers the maximum into a 401(k). May the employer still make a matching contribution?

Answer: Yes, up to the IRC § 415(c) annual addition limit, which counts employer contributions, employee contributions and forfeitures together and is a separate and larger ceiling than the § 402(g) deferral limit.

4. An individual turns 64 during 2026. Which catch-up figure applies?

Answer: The ordinary age 50 amount. IRC § 414(v)(2)(E) applies only to an individual who attains age 60, 61, 62 or 63 during the taxable year, so the higher tier is unavailable from the year age 64 is reached.

5. Does an employer’s SEP contribution reduce the amount an individual may contribute to their own IRA?

Answer: No. IRC § 219(b)(2) provides that the section does not apply to an employer contribution to a simplified employee pension, so it neither consumes nor is limited by the individual’s own IRA limit — though active participant status under § 219(g) may still reduce the deduction.