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 2026 is $72,000.3 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.
1. IRC § 415(a)(2).
2. Treas. Reg. § 1.415-6(e)(1)(i).
3. IRC § 415(c), Notice 2022-55.
4. IRC § 415(d)(4)(B).
5. Treas. Reg. §§ 1.402(g)-1(e)(1)(ii); 1.415-6(b)(1)(i).
6. Treas. Reg. §§ 1.401(m)-1(e)(3)(iv); 1.415-6(b)(1)(i).
7. Treas. Reg. § 1.415-6(b)(6)(iv).
8. Treas. Reg. § 1.415-6(e)(1)(iii).