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Demystifying The 2016 Defined Contribution Limit: Unraveling The 415 Limit

Demystifying The 2016 Defined Contribution Limit: Unraveling The 415 Limit

2023 Retirement Plan Contribution Limits (401K, 403B, Sep)

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What Is The 415 Limit For 2016?

As of January 1, 2016, there was a specific limit imposed on the annual benefit provided by defined benefit plans, which falls under Section 415(b)(1)(A) of the IRS code. This limit, which was established on October 21, 2015, remained consistent at $210,000 throughout the year. This means that individuals participating in such plans could not receive an annual benefit exceeding this amount in 2016.

What Is The Defined Contribution 415 Limit?

The defined contribution 415 limit, often referred to as the 415(c) limit, is a crucial financial regulation governing the maximum total contributions that a 401(k) retirement plan can allocate to its participants in a given “limitation year.” This limit is not static and is adjusted annually to account for changes in the cost of living. For the year 2023, the 415(c) limit is calculated as the lesser of two key factors:

  1. $66,000: This is the absolute maximum amount that can be contributed to a participant’s 401(k) account within the specified limitation year.

  2. 100% of the participant’s gross compensation: In some cases, the limit may be lower than $66,000, especially for individuals whose gross compensation is less than this amount.

It’s important to note that the 415(c) limit helps regulate the contributions made to 401(k) plans, ensuring that they remain within established boundaries while accommodating adjustments for inflation to keep pace with the cost of living. As of August 7, 2023, this limit is applicable and should be considered for retirement planning and contributions to 401(k) accounts.

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2023 Retirement Plan Contribution Limits (401k, 403b, SEP)
2023 Retirement Plan Contribution Limits (401k, 403b, SEP)

Effective January 1, 2016, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000.The 415(c) limit caps the amount of “annual additions” (i.e., total contributions) a 401(k) plan can allocate to participants each “limitation year.” It is subject to annual cost-of-living adjustments. For 2023, the 415(c) limit is the lesser of: $66,000. 100% of the participant’s gross compensation.The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000. The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).

2016 Retirement Plan Contribution Limits
LIMIT 2016
INCLUDIBLE COMPENSATION $265,000
ANNUAL DEFINED CONTRIBUTION PLAN LIMIT (415 LIMIT) $53,000 (Effective for Limitation Years Ending in 2016)
DEFINED BENEFIT PLAN ANNUAL BENEFIT LIMITATION $210,000
FICA WAGE BASE FOR INTEGRATED PLANS $118,500

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