Annual Adjustments to Retirement Plan Limitations: Analysis of Notice 2025-67 for 2026
The Internal Revenue Service (IRS) issued Notice 2025-67 to announce the cost-of-living adjustments (COLAs) that will take effect on January 1, 2026, for the limitations pertaining to qualified retirement plans and Individual Retirement Arrangements (IRAs). This guidance is essential for tax professionals and plan administrators to determine the correct compliance thresholds and maximum contribution levels for the upcoming plan year.
Statutory Mandate for Cost-of-Living Adjustments
Code Section 415 mandates limitations on the benefits and contributions allowed under qualified retirement plans. Section 415(d) requires the Secretary of the Treasury to annually adjust these limitations to account for cost-of-living increases. These adjustments are performed using procedures similar to those utilized for adjusting benefit amounts under section 215(i)(2)(A) of the Social Security Act. Other relevant amounts applicable to deferred compensation plans are also adjusted for COLA increases, typically employing a variation of the methodology used for the section 415(d) adjustments, or a variation of the methodology used for section 1(f)(3) adjustments.
Qualified Plan and Defined Benefit Limitations
Effective January 1, 2026, the limitation on the annual benefit under a defined benefit plan, governed by Code section 415(b)(1)(A), increases from $280,000 to $290,000.
For a participant who separated from service before January 1, 2026, the limitation under section 415(b)(1)(B) for a defined benefit plan is calculated by multiplying the participant’s compensation limitation (as adjusted through 2025) by a factor of 1.0288.
The limitation applicable to defined contribution plans, specified in Code section 415(c)(1)(A), increases in 2026 from $70,000 to $72,000.
Elective Deferrals and Related Limitations
Several key contribution limits are adjusted simultaneously and in the same manner as the limitation set forth in section 415(b)(1)(A):
- The limitation under Code section 402(g)(1) governing the exclusion for elective deferrals (which encompasses elective deferrals made to the Thrift Savings Plan) increases from $23,500 to $24,500.
- The limitation on deferrals under section 457(e)(15), pertaining to deferred compensation plans of state and local governments and tax-exempt organizations, also increases from $23,500 to $24,500.
For catch-up contributions applicable to individuals aged 50 or older:
- The general limitation under section 414(v)(2)(B)(i) for catch-up contributions to applicable employer plans (excluding SIMPLE plans and plans described in section 401(k)(11) or section 408(p)) increases from $7,500 to $8,000.
- The limitation under section 414(v)(2)(B)(ii) for catch-up contributions to applicable employer plans described in section 401(k)(11) or section 408(p) (SIMPLE plans) increases from $3,500 to $4,000.
- The limitation for elective contributions made to a starter 401(k) deferral-only arrangement (section 401(k)(16)(D)(i)(II)) or a safe harbor deferral-only plan (section 403(b)(16)(D)(i)(II)) remains $6,000. This amount is increased by $1,100 for individuals age 50 or over.
Specific high-income catch-up limits under section 414(v)(2)(E) for individuals attaining age 60, 61, 62, or 63 in 2026 remain at $11,250 for general plans (other than SIMPLE/401(k)(11) plans) and $5,250 for SIMPLE plans. Furthermore, the Roth catch-up wage threshold under section 414(v)(7)(A), which is used to determine if 2026 catch-up contributions to certain plans must be designated as Roth contributions, is increased from $145,000 to $150,000.
Annual Compensation and Employee Definitions
The annual compensation limitation used for purposes of Code sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) increases from $350,000 to $360,000. A separate, higher annual compensation limitation under section 401(a)(17) for eligible participants in certain governmental plans (those allowing pre-July 1993 COLA adjustments) increases from $520,000 to $535,000.
Regarding employee definitions:
- The threshold under Code section 416(i)(1)(A)(i) used to define a “key employee” for top-heavy plan purposes increases from $230,000 to $235,000.
- The compensation threshold used in the definition of a “highly compensated employee” under section 414(q)(1)(B) remains $160,000.
- The compensation amounts defining a "control employee" for fringe benefit valuation purposes under Income Tax Regulations section 1.61-21(f)(5)(i) increase from $140,000 to $145,000, and the amount under section 1.61-21(f)(5)(iii) increases from $285,000 to $290,000.
IRA, SEP, and Saver’s Credit Adjustments
Several retirement-related amounts, including those concerning IRAs and the retirement savings contributions credit (Saver’s Credit), are adjusted using a variation of the COLA methodology for section 1(f)(3) adjustments.
The general deductible amount under section 219(b)(5)(A) for qualified retirement contributions increases from $7,000 to $7,500. The additional deductible amount pursuant to section 219(b)(5)(B)(ii) for individuals aged 50 or over increases from $1,000 to $1,100.
IRA Deduction Phase-Out
For taxpayers contributing to a traditional IRA:
- Single Individuals and Heads of Household (Active Participants): The deduction phase-out range under section 219(g)(2)(A) is between $81,000 and $91,000, increased from $79,000 and $89,000. The applicable amount under section 219(g)(3)(B)(ii) increases from $79,000 to $81,000.
- Married Couples Filing Jointly (Contributor is Active Participant): The income phase-out range is between $129,000 and $149,000, increased from $126,000 and $146,000. The applicable amount under section 219(g)(3)(B)(i) increases from $126,000 to $129,000.
- Married Couples Filing Jointly (Contributor is Not Active Participant, Spouse is Active Participant): The deduction is phased out if the couple’s income is between $242,000 and $252,000, increased from $236,000 and $246,000. The applicable amount under section 219(g)(7)(A) increases from $236,000 to $242,000.
- Married Individual Filing Separate Return (Active Participant): The phase-out range remains $0 to $10,000, as this range is not subject to an annual COLA.
Roth IRA Contribution Phase-Out
The adjusted gross income (AGI) phase-out ranges under section 408A(c)(3)(A) for Roth IRA contributions are updated:
- Married Couples Filing Jointly: The phase-out range is between $242,000 and $252,000, increased from $236,000 and $246,000. The AGI limitation under section 408A(c)(3)(B)(ii)(I) increases from $236,000 to $242,000.
- Singles and Heads of Household: The income phase-out range is between $153,000 and $168,000, increased from $150,000 and $165,000. The AGI limitation under section 408A(c)(3)(B)(ii)(II) increases from $150,000 to $153,000.
Other Specialized Limits
The aggregate limitation for qualified charitable distributions (QCDs) that are not includible in gross income under section 408(d)(8)(A) increases from $108,000 to $111,000. The specific dollar amount for qualified charitable distributions made directly to a split-interest entity pursuant to a one-time election (section 408(d)(8)(F)(i)(II)) increases from $54,000 to $55,000.
The compensation threshold under section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $750 to $800.
Comparison of 2025 and 2026 COLA Amounts
The following table summarizes the key cost-of-living adjustments detailed in Notice 2025-67 for the 2026 calendar year, compared to the preceding year’s amounts.
| Limitation/Code Section | Description | Prior Amount (2025) | Revised Amount (2026) |
|---|---|---|---|
| Section 415(b)(1)(A) | Defined benefit plan annual benefit limit | $280,000 | $290,000 |
| Section 415(c)(1)(A) | Defined contribution plan annual contributions limit | $70,000 | $72,000 |
| Section 402(g)(1) | Exclusion limit for elective deferrals | $23,500 | $24,500 |
| Section 457(e)(15) | Deferral limit (State/local/tax-exempt plans) | $23,500 | $24,500 |
| Section 414(v)(2)(B)(i) | Catch-up contributions (Age 50+, general plans) | $7,500 | $8,000 |
| Section 414(v)(7)(A) | Roth catch-up wage threshold (used for 2026) | $145,000 | $150,000 |
| Section 408(p)(2)(E)(i)(III) | SIMPLE salary reduction/elective contributions | $16,500 | $17,000 |
| Section 414(v)(2)(B)(ii) | Catch-up contributions (Age 50+, SIMPLE/401(k)(11)) | $3,500 | $4,000 |
| Section 408(p)(2)(A)(iv) | SIMPLE additional nonelective contributions | $5,100 | $5,300 |
| Section 416(i)(1)(A)(i) | Key employee threshold (Top-heavy plans) | $230,000 | $235,000 |
| Section 401(a)(17), etc. | Annual compensation limitation (general) | $350,000 | $360,000 |
| Section 401(a)(17) | Annual compensation limitation (certain gov’t plans) | $520,000 | $535,000 |
| Section 402A(e)(3)(A)(i) | Pension-linked emergency savings account limit | $2,500 | $2,600 |
| Section 408(k)(2)(C) | SEP compensation threshold | $750 | $800 |
| Section 409(o)(1)(C)(ii) | ESOP 5-year distribution max account balance | $1,415,000 | $1,455,000 |
| Section 409(o)(1)(C)(ii) | ESOP distribution period lengthening amount | $280,000 | $290,000 |
| Section 457(e)(11)(B)(ii) | Length of service award limit (bona fide volunteer) | $7,500 | $8,000 |
| Section 664(g)(7) | Qualified gratuitous transfer limit (ESOP) | $60,000 | $65,000 |
| 1.61-21(f)(5)(i) | "Control employee" compensation threshold | $140,000 | $145,000 |
| 1.61-21(f)(5)(iii) | "Control employee" compensation threshold (higher) | $285,000 | $290,000 |
| Section 432(e)(9)(H)(v)(III)(aa) | Systemically important multiemployer plan threshold | $1,441,000,000 | $1,505,000,000 |
| Section 219(b)(5)(A) | IRA deductible amount (general) | $7,000 | $7,500 |
| Section 219(b)(5)(B)(ii) | IRA deductible amount (Age 50+ catch-up) | $1,000 | $1,100 |
| Section 408(d)(8)(A) | QCD aggregate limit | $108,000 | $111,000 |
| Section 45E(f)(2)(C) | Startup cost credit compensation exclusion limit | $105,000 | $110,000 |
| Section 72(t)(2)(K)(ii)(I) | Domestic abuse victim distribution limit | $10,300 | $10,500 |
Retirement Savings Contributions Credit (Saver’s Credit) AGI Limitations (Section 25B(b)(1)):
| AGI Limitation Point | Filing Status | Prior Amount (2025) | Revised Amount (2026) |
|---|---|---|---|
| Section 25B(b)(1)(A) | Married Filing Jointly | $47,500 | $48,500 |
| Section 25B(b)(1)(B) | Married Filing Jointly | $51,000 | $52,500 |
| Section 25B(b)(1)(C) and (D) | Married Filing Jointly | $79,000 | $80,500 |
| Section 25B(b)(1)(A) | Head of Household | $35,625 | $36,375 |
| Section 25B(b)(1)(B) | Head of Household | $38,250 | $39,375 |
| Section 25B(b)(1)(C) and (D) | Head of Household | $59,250 | $60,375 |
| Section 25B(b)(1)(A) | All Other Taxpayers | $23,750 | $24,250 |
| Section 25B(b)(1)(B) | All Other Taxpayers | $25,500 | $26,250 |
| Section 25B(b)(1)(C) and (D) | All Other Taxpayers | $39,500 | $40,250 |
Note on Specific Limits Remaining Unchanged
Tax professionals should note that not all relevant retirement limitations were subject to increase for 2026. The Highly Compensated Employee threshold under section 414(q)(1)(B) remains at $160,000. Additionally, the limitation on premiums paid for a qualifying longevity annuity contract under Income Tax Regulations section 1.401(a)(9)-6(q)(2)(ii) remains $210,000.
Conclusion
The release of Notice 2025-67 provides critical updated figures that must be integrated into 2026 plan administration and tax compliance calculations. The IRS also specified its approach to a potential legislative error in the calculation of the startup cost credit compensation exclusion limit under section 45E(f)(2)(C), stating it will calculate and apply the limitation by substituting “calendar year 2022” for “calendar year 2007” in the COLA calculation methodology. By incorporating these annual COLA adjustments, the IRS ensures that statutory retirement limitations reflect ongoing economic changes.
Prepared with assistance from NotebookLM.