2022 Defined Benefit Plan Limit
For 2022, the Defined Benefit Plan Limit figures are $245,000 (Annual benefit under a defined benefit plan) and $61,000 (Defined contribution plan limit).
Effective 2022-01-01Source: Notice 2021-61 (IRS)Verified 2026-09-02
Compared with 2021
| Item | 2021 | 2022 | Change |
|---|---|---|---|
| Annual benefit under a defined benefit plan | $230,000 | $245,000 | +$15,000 (+6.5%) |
| Defined contribution plan limit | $58,000 | $61,000 | +$3,000 (+5.2%) |
Who it applies to
Participants in qualified defined benefit and defined contribution retirement plans governed by Internal Revenue Code Section 415.
What changed this year, and why
Effective January 1, 2022, the IRS adjusted the Section 415 limitations on retirement plan benefits and contributions for cost-of-living increases. The annual benefit under a defined benefit plan under Section 415(b)(1)(A) was raised to $245,000. The defined contribution plan limit under Section 415(c)(1)(A) was raised to $61,000. Both amounts were higher than the corresponding limits for the prior year.
Common questions
- What are the two main retirement plan limits for 2022?
- The annual benefit limit for a defined benefit plan under Section 415(b)(1)(A) is $245,000. The defined contribution plan limit under Section 415(c)(1)(A) is $61,000.
- When do these limits take effect?
- January 1, 2022.
The benefit limit is the lesser of a dollar cap and your average pay
For 2022, a defined benefit plan cannot pay a participant an annual benefit that exceeds the lesser of two amounts. The first amount is 100% of the participant's average compensation calculated over their highest 3 consecutive calendar years. The second amount is a fixed dollar cap of $245,000. This means that even if a participant's average compensation over their best 3-year period is very high, their annual retirement benefit from the plan is still limited to $245,000. Conversely, if a participant's average compensation is relatively low, their benefit is capped at that lower average amount rather than the dollar limit. The plan document must incorporate this limitation to remain qualified under the Internal Revenue Code.
Defined benefit plan. For 2022, the annual benefit for a participant under a defined benefit plan can't exceed the lesser of the following amounts. 1. 100% of the participant's average compensation for their highest 3 consecutive calendar years. 2. $245,000 for 2022 ($265,000 for 2023).
Publication 560 (2022), Retirement Plans for Small Business (IRS)
What makes a plan a defined benefit plan
A defined benefit plan is any plan that isn't a defined contribution plan. This definition distinguishes it from defined contribution plans, where the contribution amounts are specified and the ultimate benefit depends on investment returns. In a defined benefit plan, the retirement benefit is predetermined based on a formula, and contributions must be calculated using actuarial assumptions to ensure sufficient funds are available to pay those promised benefits. Because of this actuarial complexity, employers generally need continuing professional help to maintain a defined benefit plan and determine appropriate contribution levels each year.
A defined benefit plan is any plan that isn't a defined con- tribution plan.
Publication 560 (2022), Retirement Plans for Small Business (IRS)
The compensation an employer may take into account
When calculating contributions to a qualified retirement plan, employers cannot take into account compensation above a certain limit for each employee. For 2022, the maximum compensation that can be taken into account for each employee is $305,000. This limit increases to $330,000 in 2023. This means that even if an employee earns more than $305,000 in 2022, the employer can only use $305,000 as the basis for calculating plan contributions and deductions. The compensation limit applies separately to each employee participating in the plan and is adjusted annually for inflation. This cap affects both the contribution amounts and the tax deductions available to the employer.
The maximum compensation that can be taken into account for each employee in 2022 is $305,000 ($330,000 in 2023).
Publication 560 (2022), Retirement Plans for Small Business (IRS)
The separate limit on a defined contribution plan
For 2022, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant can't exceed the lesser of two amounts. The first limit is 100% of the participant's compensation. The second limit is $61,000 for 2022, which increases to $66,000 for 2023. These additions exclude investment earnings on the account balance. This means the total amount contributed to a participant's defined contribution account in a single year cannot be more than $61,000, regardless of how much the participant earns or how much the employer wants to contribute. If a participant's compensation is less than $61,000, the limit is their actual compensation amount. Catch-up contributions for participants age 50 or older are not subject to this limit.
For 2022, a defined contri- bution plan's annual contributions and other additions (ex- cluding earnings) to the account of a participant can't ex- ceed the lesser of the following amounts. 1. 100% of the participant's compensation. 2. $61,000 for 2022 ($66,000 for 2023).
Publication 560 (2022), Retirement Plans for Small Business (IRS)
Why the deduction has to be figured by an actuary
The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Consequently, an actuary must figure your deduction limit. Unlike defined contribution plans where the deduction is more straightforward, defined benefit plans require complex calculations to determine how much can be deducted based on the promised benefits, participant demographics, and other factors. The actuary uses specialized tables and assumptions about interest rates, mortality, and other variables to calculate the appropriate deduction amount. This requirement ensures that the deduction claimed accurately reflects the cost of providing the defined benefits promised under the plan.
The deduction for contributions to a defined benefit plan is based on actuarial assump- tions and computations. Consequently, an actuary must figure your deduction limit.
Publication 560 (2022), Retirement Plans for Small Business (IRS)
How many employees the plan has to cover
For a defined benefit plan to be a qualified plan under federal rules, it must cover at least the lesser of 50 employees or the greater of 40% of all employees or 2 employees. If there is only 1 employee, the plan must benefit that employee. This is the IRS minimum coverage requirement.
Minimum coverage requirement must be met. To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. 1. 50 employees. 2. The greater of: a. 40% of all employees, or b. Two employees. If there is only one employee, the plan must benefit that employee.
Publication 560 (2022), Retirement Plans for Small Business (IRS)
The plan has to exist before the year it covers ends
An employer who wants to deduct contributions for a given tax year must have formally adopted the plan no later than the final day of that year. For a calendar-year business the cutoff is December 31; a fiscal-year employer must adopt by the last day of its fiscal year. The rule is a hard deadline - even one day late and the employer loses the deduction for the year. A plan can be set up at any time during the year, including the last day, but it must exist as a written, adopted document before the year closes in order for contributions made for that year to be deductible. Employers should not confuse this with the filing deadline for contributions, which may extend to the tax-return due date; the adoption itself must happen by year-end.
Set-up deadline. To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year em- ployers).
Publication 560 (2022), Retirement Plans for Small Business (IRS)
Contributions above the deduction limit are not lost, just delayed
When an employer contributes more to a qualified plan than the annual deduction limit allows, the excess is not forfeited. Instead, the employer may carry the difference forward and deduct it in later years, together with the contributions made for those later years. The combined deduction in any carryover year cannot exceed 25% of the participating employees' compensation for that year. For this purpose a SEP is treated as a profit-sharing (defined contribution) plan. Self-employed individuals must further reduce the 25% percentage to arrive at the maximum deduction on contributions for themselves. While the carryover preserves the employer's right to deduct, the excess amounts sitting in the plan may still be subject to the excise tax on nondeductible contributions until they are absorbed by a later year's deduction limit.
If you contribute more to a plan than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year.
Publication 560 (2022), Retirement Plans for Small Business (IRS)
Contributing more than the limit can trigger a 10% excise tax, but not for a defined benefit plan's minimum funding
Contributing more than the deduction limit to a qualified retirement plan generally triggers a 10% excise tax on the nondeductible amount, which must be reported on Form 5330. The tax applies to qualified pension plans, profit-sharing plans, and SEPs. However, the IRS provides an important exception for self-employed individuals: the 10% excise tax does not apply to any contribution made to satisfy the minimum funding requirement of a money purchase pension plan or a defined benefit plan. Even if such a contribution exceeds the employer's earned income from the trade or business for which the plan was established, the excess is not subject to the excise tax. This special rule recognizes that minimum funding obligations are mandatory and should not be penalized when a self-employed person's income in a given year falls short.
Special rule for self-employed individuals. The 10% excise tax doesn't apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Even if that contri- bution is more than your earned income from the trade or business for which the plan is set up, the difference isn't subject to this excise tax.
Publication 560 (2022), Retirement Plans for Small Business (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Notice 2021-61 (IRS)
- Annual benefit under a defined benefit plan
Effective January 1, 2022, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $230,000 to $245,000.
- Defined contribution plan limit
The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2022 from $58,000 to $61,000.