As plan sponsors prepare for the changes to the limits for their retirement plans and the effects on their labor costs and talent recruitment and retention efforts in 2026, we offer our 2026 Internal Revenue Service (IRS) Limits Forecast.
We published the limits for 2025 in November 2024 following the announcements by the federal agencies of the annual cost-of-living adjustments, along with the corresponding limits for 2024 and 2023. In this forecast, we estimate the following IRS qualified retirement plan compensation and benefits limits:
- The maximum annual defined benefit (DB) plan annuity payable as a single life annuity. This amount may need an actuarial adjustment if the retirement date is before age 62 or after age 65, or if the participant’s elected form of payment is not a single life annuity.
- The maximum annual addition to a defined contribution (DC) plan. This is the sum of any employee pre-tax or Roth elective deferral contributions (excluding catch-up contributions), employee non-Roth after-tax contributions, employer contributions (matching, profit-sharing, or other nonelective), and any reallocated forfeitures.
- The employee’s annual DC plan limit on elective deferral contributions under a 401(k), 403(b), or 457(b) plan. SECURE 2.0 permits plan sponsors to elect to treat qualified student loan payments as elective deferrals. Recognition of such loan payments may not exceed this limit—or, if less, the employee’s Internal Revenue Code (IRC) §415(c)(3) compensation for the year—reduced by the employee’s elective deferrals for the year.
- Catch-up contributions for participants aged 50 and older. In addition to the regular catch-up contributions, SECURE 2.0 permits plans to offer higher catch-up limits for participants aged 60, 61, 62, or 63.
- The compensation limit used in the pension plan’s benefit and contribution formula(s).
- The compensation threshold for highly compensated employees (HCEs).
- The compensation threshold for key employees.
- Portion of emergency savings accounts (ESA) attributable to participant contributions. SECURE 2.0 permits plan sponsors to add ESAs to their DC plans, allowing non-HCEs to contribute to these accounts on a Roth basis. The portion of the account attributable to participant contributions is limited by law.
- Compensation threshold triggering Roth catch-up contributions. SECURE 2.0 requires plans that offer catch-up contributions to require catch-up contributions only on a Roth basis for participants whose wages (as defined in IRC §3121[a]) exceed $145,000 (indexed for inflation) in the prior calendar year. The IRS provided a two-year administrative transition period for plans to implement this provision until December 31, 2025.
How the 2026 IRS limits will be calculated
After the close of federal fiscal year (FFY) 2025, the IRS will use the 12 months of the reported Consumer Price Index (CPI) to calculate the 2026 IRS limits. (The calculations are more complex than just multiplying the 2025 limits by the CPI, but those details are omitted here.) FFY 2025 is defined as the 12-month period from October 1, 2024 to September 30, 2025. The IRS could release its 2026 limits in October or November 2025. (The 2025 limits were announced on November 1, 2024.)
March 2025 forecast
Our limits forecast is projected using two assumption sets. One set is based on the current trailing 12 months of CPI and the second assumes that year-to-date CPI (since September 30, 2024) will continue to increase each month through September 30, 2025 by an estimated 25 basis points (3.0% annual).
Figure 1 shows the historical rolling 12-month changes in CPI as of each September 30 through 2024 and through March 31 for the current FFY.
Figure 1: Historical 12-month percentage change each September 30, Consumer Price Index, all items, not seasonally adjusted
Source: U.S. Bureau of Labor Statistics.
Inflation in the 12 months ending March 31, 2025 was 2.4% as reported by the U.S. Bureau of Labor Statistics (BLS) on April 10, 2025. This is the same as the 2.4% annual change in CPI as of September 30, 2024 while being lower than the 2.9% average annual change over the past 10 years ended September 30, 2024 and the 2.6% average annual change over the past 20 years ended September 30, 2024.
Since September 30, 2024, the CPI has increased about 1.4%. Projecting monthly increases of 0.25% through September 2025 results in an annual increase of about 2.8% for our 6-month actual/6-month forecast projection.
Figure 2 shows the projections for the IRS limits for 2026.
BLS is expected to release the April CPI results on May 13, 2025. We will update this forecast at that time.
Please contact your Milliman consultant for details and questions about how these limits apply to your retirement plan(s).
Figure 2: 2026 IRS Limits Forecast using actual FFY 2025 CPI as of March 31, 2025
| Category of annual IRS limits | 2025 IRS limits | Estimated 2026 IRS limits | Dollar increases from 2025 limit | ||
|---|---|---|---|---|---|
| Actual 12-month trailing CPI as of 3/31/2025 | 6-month actual 3/31/2025, 6 months forecast to 9/30/2025 | Actual 12-month trailing CPI as of 3/31/2025 | 6-month actual 3/31/2025, 6 months forecast to 9/30/2025 | ||
| Maximum annual annuity pension for DB plans | $280,000 | $290,000 | $290,000 | $10,000 | $10,000 |
| Maximum annual addition for DC plans | $70,000 | $72,000 | $72,000 | $2,000 | $2,000 |
| Maximum §401(k), §403(b), §457 deferral for DC plans | $23,500 | $24,500 | $24,500 | $1,000 | $1,000 |
| Catch-up contribution limit for DC plans* | $7,500 Ages 60 to 63: $11,250 |
$8,000 Ages 60 to 63: $11,250 |
$8,000 Ages 60 to 63: $11,250 |
$500 0 |
$500 0 |
| Compensation limit | $350,000 | $360,000 | $360,000 | $10,000 | $10,000 |
| HCE dollar amount | $160,000 | $160,000 | $160,000 | $0 | $0 |
| Key employee/officer compensation | $230,000 | $235,000 | $235,000 | $5,000 | $5,000 |
| Contribution limit to ESAs for DC plans | $2,500 | $2,600 | $2,600 | $100 | $100 |
| Prior year wage threshold triggering Roth catch-up contributions to DC plans | $145,000 | $150,000** | $150,000** | $5,000 | $5,000 |
* Under SECURE 2.0, plans are permitted (but not required) to increase the catch-up limit for participants aged 60, 61, 62, or 63.
** We assumed this threshold will be indexed for inflation during the 2-year transition period ending December 31, 2025.
Source: https://www.bls.gov/cpi/ retrieved April 10, 2025.
Actual 12-month trailing CPI for All Urban Consumers (CPI-U) of 2.4% ending March 31, 2025.
Actual 6-month CPI-U ending March 31, 2025 and 0.25% per month for April through September 2024.