ExamFinch.com My Study

Study guide

F.48.2 Contribution and Benefit Limits

Practice this exam

Certified Financial Planner CFP

Track your progress as you read

Finished sections get a check mark.

1 A. Professional Conduct and Regulation

A.1 Code of Ethics and Standards of Conduct A.1.1 The Six Ethical Principles A.2 Procedural Rules and Discipline A.2.1 Fitness Standards for Candidates A.3 Financial Institutions Overview A.3.1 Broker-Dealers vs. RIAs A.4 SEC and Securities Regulation A.4.1 FINRA and Broker-Dealer Regulation A.4.2 State Securities Regulation A.5 Consumer Protection Laws A.5.1 Privacy and Confidentiality Requirements A.6 Fiduciary Duty and Application

2 B. General Principles of Financial Planning

B.7 The Financial Planning Process B.7.1 Establishing the Client Relationship B.7.2 Gathering Client Data and Goals B.8 Personal Financial Statements B.8.1 Key Financial Ratios B.9 Cash Flow Management B.9.1 Emergency Fund Planning B.10 Debt Management Strategies B.10.1 Mortgage and Home Financing B.11 Economic Concepts B.11.1 Planning for Inflation B.12 Time Value of Money Concepts B.12.1 TVM Calculations and Applications B.12.2 Loan Amortization B.13 Education Needs Analysis B.14 Education Savings Vehicles B.14.1 529 Plans In-Depth B.15 Education Funding Strategies B.16 Gift/Income Tax Strategies

3 C. Risk Management and Insurance Planning

C.17 Principles of Risk and Insurance C.17.1 Risk Management Process C.18 Analysis of Risk Exposures C.19 Health Insurance Fundamentals C.19.1 Types of Health Insurance Plans C.20 Disability Income Insurance C.20.1 Disability Policy Features C.21 Long-Term Care Insurance C.22 Annuities Overview C.22.1 Fixed vs. Variable Annuities C.23 Life Insurance Fundamentals C.23.1 Types of Life Insurance C.24 Business Owner Insurance Solutions C.25 Insurance Needs Analysis C.26 Insurance Policy and Company Selection

4 D. Investment Planning

D.27 Equity Securities D.27.1 Fixed Income Securities D.27.2 Mutual Funds and ETFs D.27.3 Taxation of Investment Vehicles D.28 Systematic Risk D.28.1 Unsystematic Risk D.29 Economic and Market Cycles D.30 Measures of Risk and Return D.30.1 Investment Performance Measures D.31 Asset Allocation Strategies D.31.1 Portfolio Diversification D.32 Bond and Stock Valuation D.32.1 Stock Valuation Models D.33 Investment Policy Statement D.33.1 Modern Portfolio Theory D.34 Active vs. Passive Investing D.34.1 Common Investment Strategies D.35 Alternative Investments D.35.1 Options and Derivatives

5 E. Tax Planning

E.36 Income Tax Fundamentals E.36.1 Filing Status and Tax Brackets E.37 Types of Income E.37.1 Deductions and Credits E.37.2 Capital Gains and Losses E.38 Business Entity Taxation E.38.1 Self-Employment Tax E.39 Taxation of Trusts and Estates E.40 Tax Reduction Strategies E.40.1 Retirement Account Tax Strategies E.41 Property Transactions E.41.1 Basis Rules for Acquired Property E.42 AMT and NIIT E.42.1 Special Tax Situations E.43 Charitable Giving Strategies

6 F. Retirement Savings and Income Planning

F.44 Retirement Needs Analysis F.44.1 Sources of Retirement Income F.45 Social Security Benefits F.45.1 Social Security Claiming Strategies F.45.2 Medicare Planning F.46 Eldercare and Special Needs Planning F.47 Qualified Plan Overview F.47.1 Defined Benefit Pension Plans F.47.2 Defined Contribution Plans F.48 Eligibility and Vesting F.48.1 Coverage and Discrimination Testing F.48.2 Contribution and Benefit Limits F.48.3 401(k) Plan Features F.49 Non-Qualified Deferred Compensation F.49.1 Executive Compensation Plans F.50 Retirement Plan Selection for Businesses F.50.1 Individual Retirement Accounts F.51 Distribution Rules F.51.1 Required Minimum Distributions F.52 Retirement Income Strategies F.52.1 Tax-Efficient Withdrawal Strategies F.53 Business Succession Planning

7 G. Estate Planning

G.54 Property Titling and Beneficiary Designations G.54.1 Beneficiary Designations G.55 Strategies to Transfer Property G.55.1 Lifetime Gifting Strategies G.56 Wills and Estate Documents G.56.1 Powers of Attorney G.56.2 Advance Directives and Healthcare Documents G.57 Federal Gift Tax G.57.1 Federal Estate Tax G.57.2 Generation-Skipping Transfer Tax G.58 Sources for Estate Liquidity G.58.1 Life Insurance for Estate Liquidity G.59 Trust Fundamentals G.59.1 Revocable Living Trusts G.59.2 Irrevocable Trusts G.59.3 Trust Income Taxation G.60 Marital Deduction Planning G.60.1 QTIP Trusts G.60.2 Portability of Estate Tax Exemption G.61 Intra-family and Business Transfer Techniques G.61.1 Family Limited Partnerships G.61.2 GRATs and IDGTs G.62 Postmortem Estate Planning Techniques G.62.1 Disclaimer Planning G.62.2 Estate Tax Elections G.63 Planning for Divorce and Unmarried Couples G.63.1 Estate Planning for Unmarried Couples G.63.2 Planning for Blended Families G.64 Planning for Special Needs and Circumstances G.64.1 Special Needs Trusts G.64.2 ABLE Accounts

8 H. Psychology of Financial Planning

H.65 Client and Planner Attitudes, Values, Biases H.65.1 Money Scripts and Money Attitudes H.65.2 Planner Self-Awareness H.66 Behavioral Finance H.66.1 Cognitive Biases H.66.2 Emotional Biases H.66.3 Heuristics and Mental Accounting H.67 Sources of Money Conflict H.67.1 Couples and Money Conflict H.67.2 Family and Intergenerational Money Conflict H.68 Principles of Counseling H.68.1 Therapeutic Techniques in Financial Planning H.68.2 Professional Boundaries and Referrals H.69 General Principles of Effective Communication H.69.1 Listening and Questioning Skills H.69.2 Managing Difficult Conversations H.69.3 Non-Verbal Communication H.70 Crisis Events with Severe Consequences H.70.1 Death and Divorce H.70.2 Job Loss and Health Crisis H.70.3 Sudden Wealth and Sudden Loss H.70.4 Natural Disasters and Traumatic Events

F.48.2 Contribution and Benefit Limits

Key Takeaways Explain This Topic AI

2026 401(k) deferral limit: $24,500 + $8,000 catch-up (age 50-59/64+) or $11,250 super catch-up (ages 60-63)

2026 Annual additions limit (IRC 415(c)): lesser of 100% compensation or $72,000

2026 Defined benefit annual limit (IRC 415(b)): $290,000 or 100% of 3-highest consecutive years average

2026 Covered compensation limit: $360,000 for calculating employer contributions

  • Self-employed reduced contribution rate = Plan Rate / (1 + Plan Rate) due to circular calculation
  • Last updated: October 2026

Contribution and Benefit Limits

IRC Section 415 establishes the maximum limits on contributions and benefits for qualified retirement plans. These limits are adjusted annually for inflation and apply to both defined contribution and defined benefit plans. Understanding these limits is essential for retirement plan design, employee benefit maximization, and CFP exam success.

2026 Contribution and Benefit Limits Summary

  • Limit Type 2026 Amount IRC Section
  • Defined Contribution Plans
  • Employee Elective Deferral (401(k), 403(b), 457) $24,500 402(g)
  • Catch-Up (Ages 50-59 and 64+) $8,000 414(v)
  • Super Catch-Up (Ages 60-63) $11,250 414(v)
  • Annual Additions Limit $72,000 415(c)
  • Defined Benefit Plans
  • Annual Benefit Limit $290,000 415(b)
  • Compensation Limits
  • Maximum Covered Compensation $360,000 401(a)(17)
  • HCE Threshold (Prior Year Compensation) $160,000 414(q)
  • Key Employee Officer Compensation $235,000 416(i)
  • Other Limits
  • SIMPLE IRA Deferral $17,000 408(p)
  • SIMPLE Catch-Up (Age 50+) $4,000 414(v)
  • IRA Contribution $7,500 219
  • IRA Catch-Up (Age 50+) $1,100 219
  • IRC Section 415(c): Annual Additions Limit

The annual additions limit caps total contributions to a defined contribution plan participant's account each year.

What Counts as Annual Additions

Annual additions include:

  • Employer contributions (matching and profit sharing)
  • Employee elective deferrals (pre-tax and Roth)
  • Forfeitures allocated to the participant's account
  • After-tax employee contributions (if permitted)
  • The 2026 Annual Additions Formula

The maximum annual addition is the lesser of :

  • 100% of the participant's compensation , OR
  • $72,000 (2026 limit)

Important: Catch-up contributions do NOT count against the $72,000 annual additions limit. They are added on top.

Maximum Total Deferral Examples (2026)

  • Participant Age Employee Deferral Catch-Up Total Deferral Plus Employer to Max
  • Under 50 $24,500 $0 $24,500 $47,500 to reach $72,000
  • 50-59 $24,500 $8,000 $32,500 $47,500 to reach $80,000
  • 60-63 $24,500 $11,250 $35,750 $47,500 to reach $83,250
  • 64+ $24,500 $8,000 $32,500 $47,500 to reach $80,000

Example: Sarah, age 61, works for a company with a 401(k) profit sharing plan. She earns $200,000.

  • Employee deferral: $24,500
  • Super catch-up (age 60-63): $11,250
  • Maximum employer contribution: $72,000 - $24,500 = $47,500
  • Total possible: $83,250 ($24,500 + $11,250 + $47,500)
  • Super Catch-Up Contributions (Ages 60-63)

SECURE 2.0 introduced enhanced catch-up contributions for participants ages 60, 61, 62, and 63 beginning in 2025.

Super Catch-Up Rules

  • Feature Details
  • Eligible Ages 60, 61, 62, and 63 (attained by end of calendar year)
  • 2026 Amount $11,250 (greater of $10,000 or 150% of the 2024 regular catch-up)
  • Age 64+ Reverts to standard $8,000 catch-up
  • Plan Requirement Plans with age 50+ catch-up not required to offer super catch-up
  • Not Subject to 415(c) Does not count toward $72,000 annual additions limit
  • Roth Catch-Up Requirement (Starting 2026)

Beginning in 2026, SECURE 2.0 requires participants whose prior-year FICA wages from the plan sponsor exceeded $150,000 for 2026 (indexed from $145,000) to make catch-up contributions on a Roth basis only . If a plan does not offer Roth contributions, these high earners cannot make catch-up contributions.

IRC Section 415(b): Defined Benefit Limits

The maximum annual benefit payable from a defined benefit pension plan is the lesser of :

  • $290,000 (2026), OR
  • 100% of the participant's average compensation for the 3 highest consecutive years
  • Key DB Limit Adjustments
  • Factor Effect
  • Early retirement (before 62) Actuarial reduction to limit
  • Late retirement (after 65) Actuarial increase to limit
  • Less than 10 years of service Limit reduced by 10% per year of service shortfall
  • Less than 10 years of participation Limit reduced by 10% per year of participation shortfall
  • Covered Compensation Limit

The covered compensation limit ($360,000 for 2026) caps the amount of an employee's compensation that can be considered for:

  • Calculating employer contributions
  • Applying plan benefit formulas
  • Nondiscrimination testing

Example: An executive earning $500,000 can only have $360,000 considered for plan purposes. If the profit sharing plan contributes 10% of compensation:

  • Contribution = $360,000 x 10% = $36,000 (not $50,000)
  • Self-Employed Contribution Calculation

Self-employed individuals face a unique challenge: their deductible contribution reduces their net self-employment income, which in turn reduces the contribution. This creates a circular calculation requiring a reduced rate formula.

The Reduced Rate Formula Self-Employed Contribution Rate = Plan Rate / (1 + Plan Rate)

Example: A sole proprietor wants to contribute 25% of compensation to a SEP-IRA. Net self-employment earnings after the deduction for 1/2 self-employment tax = $200,000.

  • Step 1: Calculate reduced rate
  • 25% / (1 + 25%) = 25% / 1.25 = 20%
  • Step 2: Apply reduced rate
  • $200,000 x 20% = $40,000 maximum contribution
  • Common Reduced Rates
  • Plan Contribution Rate Reduced Self-Employed Rate
  • 25% 20% (25/125)
  • 20% 16.67% (20/120)
  • 15% 13.04% (15/115)
  • 10% 9.09% (10/110)
  • How Limits Interact

Understanding how contribution limits work together is critical for exam questions.

Scenario: Employee with Multiple Plans

If an employee participates in multiple 401(k) plans (e.g., main job + side business), the $24,500 elective deferral limit applies across all plans combined , but each plan has its own $72,000 annual additions limit.

Scenario: Both DB and DC Plans

When an employer sponsors both defined benefit and defined contribution plans:

  • Each plan has separate 415 limits
  • The old combined limit (IRC 415(e)) was repealed in 2000
  • Employer deduction is limited to 25% of covered compensation for DC plans
  • On the CFP Exam

Expect questions on:

  • Calculating maximum contributions for various ages and income levels
  • Applying the self-employed reduced rate formula
  • Identifying what counts (and doesn't count) toward annual additions
  • Understanding the 3-highest-consecutive-years test for DB limits
  • Knowing the super catch-up eligibility ages (60-63) and amount ($11,250)