Each year the IRS sets limits on the amount an individual can contribute (known as income they defer) through elective contributions to their retirement accounts. The limit applies to any 401(k), 403(b), SAR-SEPs, and SIMPLE-IRA plans, with the total contributions counted during a calendar year.
As a plan sponsor, these annual updates to IRS Code Section 402(g) are important. You’ll need them to ensure compliance with 415(c) and ADP tests as well as your participants’ withdrawals for excess contributions. Read on for everything you need to know.
Key Facts About the 402(g) Elective Deferral Limit
- It’s an individual limit: The cap applies to you as a person, not to each individual plan. If you have 2 jobs or switch jobs mid-year and have different 401(k) plans, your total contributions across both cannot exceed the annual limit.
- Includes Pre-tax and Roth: Both traditional, pre-tax contributions and designated Roth contributions count toward this single combined limit.
- Excluded contributions: Employer contributions, such as a match or profit sharing, do not count toward the 402(g) limit.
- Applicable plans: It covers 401(k), 403(b), SAR-SEPs, and SIMPLE-IRA plans.
2026 Annual Contribution Limits
The IRS reviews the 402(g) elective deferral limits each year for cost-of-living adjustments. In 2026, they adjusted the limit to $24,500 (under age 50) and $32,500 for workers over age 50.
To Do: Make sure to capture these new limits in your payroll software.
| Year | Standard Limit (Under Age 50) | Catch-Up Limit (Age 50+) | Total for Age 50+ |
| 2026 | $24,500 | $8,000 | $32,500 |
| 2025 | $23,500 | $7,500 | $31,000 |
“Excess Deferrals”
If a participant contributes more to their retirement plan(s) than the Code section 402(g) limit for the calendar year, the extra amount is called an “excess deferral.” It must be distributed and must be included in the individual’s gross income.
Exclude “Catch-Up” Contributions
If you are at least age 50 at any time during the calendar year, you are eligible to make “catch-up” contributions (up to $8,000 in 2026). You can exclude these “catch-up” contributions when determining whether or not you exceeded your elective deferral limit. More on “Catch-Up” contributions and “Super Catch-Ups” below.
Correct Excess Deferrals by April 15
Correct excess deferrals by April 15 of the following calendar year. Note: The plan’s year-end is irrelevant for purposes of the April 15 deadline.
For individuals with excess deferrals and multiple plans, the simplest solution is to choose one plan to withdraw from.
If the excess deferral is distributed by April 15, the following tax rules apply:
- Tax year:
- Pre-tax deferrals are taxable income in the year of deferral
- Roth deferrals and earnings are taxable income in the year of distribution
- The 10% early distribution tax does not apply
- The 20% withholding is not required, and spousal consent is not required
Excess Deferrals Corrected After April 15
Individual Consequences
If a participant doesn’t withdraw the excess deferral by April 15:
- The excess amount will be included in their taxable income for the year it was contributed, and
- It will be taxed again when the excess deferral is eventually distributed from the plan.
Plan Considerations for Administrators
Excess deferrals can create a 402(g) issue, but they also have unique considerations plan administrators should know about.
- Excess deferrals also count toward the plan’s overall annual contribution limit under Section 415(c) for the year in which the deferral was made. If the participant is already close to the 415(c) limit, the excess deferral could cause them to exceed that limit as well.
- For Highly Compensated Employees (HCEs), excess deferrals are included in Average Deferral Percentage (ADP) testing, while excess deferrals of NHCEs are not. Unresolved excess deferrals may make the ADP test, if required, more difficult to pass.
The “Catch-Up” Exception
If you are age 50 or older, you are eligible for catch-up contributions, allowing you to save even more. These do not count toward the base 402(g) elective deferral limit:
- 2025 & 2026 Catch-Up Limit: $7,500 (2025) and $8,000 (2026).
- Super Catch-Up: Starting in 2025, participants aged 60–63 may be eligible for an even higher “super catch-up” limit—$11,250 for 2025 and 2026.
Standard Catch-Up (Age 50+)
Once you reach age 50, you are eligible to contribute more than the standard employee limit.
In 2026 you can add an extra $8,000 to your 401(k), up from $7,500 in 2025. This brings your total possible employee contribution to $32,500 for the year.
The “Super Catch-Up” (Ages 60-63)
Thanks to the SECURE 2.0 Act, workers in their early 60s now have an even higher ceiling.
If you turn 60, 61, 62, or 63 during the calendar year, your catch-up limit increases to $11,250. Eligible individuals can contribute $35,750 in total for 2026.
New Roth Requirement for High Earners
Starting in 2026, a new rule affects how you must contribute these catch-up funds based on your income.
- The Threshold: If your prior-year (2025) FICA wages exceeded $150,000, all of your catch-up contributions must be made to a Roth (after-tax) account.
- Standard Earners: If you earned $150,000 or less, you can still choose between pre-tax contributions or Roth contributions for your catch-up amounts.
Plan sponsors must limit participant deferrals to the 402(g) limit every year as violations may lead to penalties for both the plan sponsor and the participant.
Need Help Navigating Elective Deferral Limits?
At Watkins Ross, we’re here to support you. If you have any questions or need help managing these responsibilities, we would love to chat. Please do not hesitate to call (616-456-9696) or email us with any questions you may have!
