2024 Defined Benefit Plan Limit
For 2024, the Defined Benefit Plan Limit figures are $275,000 (Annual benefit under a defined benefit plan) and $69,000 (Defined contribution plan limit).
Effective 2024-01-01Source: Notice 2023-75 (IRS)Verified 2026-09-02
Compared with 2023
| Item | 2023 | 2024 | Change |
|---|---|---|---|
| Annual benefit under a defined benefit plan | $265,000 | $275,000 | +$10,000 (+3.8%) |
| Defined contribution plan limit | $66,000 | $69,000 | +$3,000 (+4.5%) |
Who it applies to
Sponsors and participants of qualified defined benefit and defined contribution retirement plans subject to IRC Section 415.
What changed this year, and why
Effective January 1, 2024, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) of the Internal Revenue Code increased to $275,000, up from $265,000 in 2023. The related defined contribution plan limit under Section 415(c)(1)(A) also rose, to $69,000 for 2024 from $66,000 in 2023. These cost-of-living adjustments were published in IRS Notice 2023-75.
Common questions
- What does the defined benefit plan limit mean?
- Section 415(b)(1)(A) of the Internal Revenue Code caps the annual benefit that can be paid from a qualified defined benefit pension plan. For 2024, that cap is $275,000.
- How does this differ from the defined contribution plan limit?
- The defined contribution plan limit under Section 415(c)(1)(A) is $69,000 for 2024, up from $66,000 in 2023.
Every amount on this page is a published figure rather than yours. The Plan limit headroom takes the number you enter and works it out against them, showing which published figure it used.
The benefit limit is the lesser of a dollar cap and your average pay
Under a defined benefit plan, the annual benefit payable to any participant cannot exceed the lesser of two amounts: either 100% of the participant's average compensation during their highest 3 consecutive calendar years, or a fixed dollar limit set at $275,000 for 2024. This means that even if your average pay over your best three-year period exceeds $275,000, your annual retirement benefit is capped at that dollar amount. Conversely, if your average compensation is less than $275,000, the 100% of pay limit becomes the binding constraint. The rule ensures that defined benefit plans do not provide disproportionately large benefits to highly compensated participants relative to their actual earnings history.
Defined benefit plan. For 2024, 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. $275,000 for 2024 ($280,000 for 2025).
Publication 560 (2024), Retirement Plans for Small Business (IRS)
What makes a plan a defined benefit plan
A defined benefit plan is essentially any retirement plan that is not a defined contribution plan. Instead of specifying how much goes into the account each year, the plan promises a specific benefit amount to participants when they retire. To fund these promised benefits, the employer must make contributions that are calculated using actuarial assumptions and computations. These calculations determine how much money needs to be set aside today to provide the promised future benefits. Because of this complexity, employers typically need ongoing professional assistance to maintain a defined benefit plan properly. The plan structure focuses on the end result - the benefit the participant will receive - rather than the contribution amounts made along the way.
A defined benefit plan is any plan that isn't a defined con- tribution plan. Contributions to a defined benefit plan are based on what is needed to provide definitely determina- ble benefits to plan participants. Actuarial assumptions and computations are required to figure these contribu- tions. Generally, you will need continuing professional help to have a defined benefit plan.
Publication 560 (2024), Retirement Plans for Small Business (IRS)
The compensation an employer may take into account
When calculating contribution deductions for qualified retirement plans, employers cannot consider compensation above a certain threshold for each employee. For 2024, the maximum compensation that can be taken into account is $345,000 per employee. This means that even if an employee earns more than $345,000 in a year, the employer's deductible contributions are calculated as if the employee's compensation were exactly $345,000. The rule prevents excessive tax-advantaged contributions for highly paid employees and applies regardless of actual earnings. This compensation cap is separate from and in addition to the limits on contribution amounts themselves.
The maximum compensation that can be taken into account for each employee in 2024 is $345,000 ($350,000 in 2025).
Publication 560 (2024), Retirement Plans for Small Business (IRS)
The separate limit on a defined contribution plan
Defined contribution plans have a separate annual limit on how much can be added to each participant's account. For 2024, the total annual contributions and other additions (excluding investment earnings) cannot exceed the lesser of either 100% of the participant's compensation or $69,000. This limit applies to all sources of additions to the account, including employer contributions, employee contributions if permitted, and forfeitures allocated from other participants' accounts. However, catch-up contributions made by participants age 50 or older are not subject to this limit and can be made in addition to the regular contribution cap. The limit ensures that defined contribution plans maintain their tax-qualified status by preventing excessive accumulation in individual accounts.
Defined contribution plan. For 2024, 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. $69,000 for 2024 ($70,000 for 2025).
Publication 560 (2024), Retirement Plans for Small Business (IRS)
Why the deduction has to be figured by an actuary
The tax deduction for contributions to a defined benefit plan must be calculated by an actuary because the contribution amounts depend on complex actuarial assumptions and computations. Unlike defined contribution plans where the contribution amount is straightforward, defined benefit plans promise specific future benefits, requiring actuarial analysis to determine how much must be contributed today to fund those promised benefits. The actuary must consider factors such as participant demographics, expected salary growth, investment return assumptions, mortality tables, and the timing of benefit payments. This professional calculation ensures that employer deductions accurately reflect the cost of providing the promised retirement benefits while complying with IRS rules that limit deductions to amounts needed to fund benefits within the legal limits.
Defined benefit plans. 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 (2024), Retirement Plans for Small Business (IRS)
How many employees the plan has to cover
A defined benefit plan must cover enough employees to be a qualified plan. Specifically, it must benefit at least the lesser of 50 employees or the greater of 40% of all employees or 2 employees. If there is only one employee, the plan must benefit that employee. This minimum coverage requirement ensures that the plan doesn't just benefit a select group of highly compensated employees while excluding the broader workforce.
Minimum coverage requirement must be met. To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following.TIP 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 (2024), Retirement Plans for Small Business (IRS)
The plan has to exist before the year it covers ends
To take a tax deduction for contributions to a defined benefit plan for a given tax year, the plan must be formally adopted by the last day of that year. This means the written plan document must be in place by December 31 for calendar-year taxpayers, or by the last day of the employer's tax year for fiscal-year filers. If the plan is not established until after the year ends, contributions cannot be deducted for that year even if they are made before the tax filing deadline. Employers who want to make deductible contributions for a particular year should ensure the plan documents are executed before that year closes.
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.
Publication 560 (2024), Retirement Plans for Small Business (IRS)
Contributions above the deduction limit are not lost, just delayed
If an employer contributes more to a defined benefit plan than the deduction limit allows for the year, the excess is not forfeited. Instead, the employer can carry the excess forward and deduct it in later years, combined with contributions made for those years. However, the total deduction in any later year remains subject to the applicable percentage limit on compensation. The carried-over amount may also be subject to the excise tax on nondeductible contributions unless a special rule applies, such as the exception for minimum funding contributions to a defined benefit plan. This carryover mechanism ensures that contributions above the annual deduction ceiling are not permanently lost but are simply deferred to years when the deduction limit can accommodate them.
Carryover of Excess Contributions 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.
Publication 560 (2024), 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
When an employer contributes more than the deduction limit to a defined benefit plan, those excess contributions are considered nondeductible and may trigger a 10% excise tax. This tax applies to nondeductible contributions made to qualified pension plans, profit-sharing plans, and SEPs. However, there is an important exception: the 10% excise tax does not apply to contributions made to satisfy the minimum funding requirements of a defined benefit plan. This special rule recognizes that defined benefit plans have mandatory funding obligations, and employers should not be penalized with an excise tax simply for meeting those requirements even if the contribution exceeds the normal deduction limit for the year. Employers must report any applicable excise tax on Form 5330.
Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retire- ment plan, you have made nondeductible contributions and you may be liable for an excise tax. In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. 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.
Publication 560 (2024), 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 2023-75 (IRS)
- Annual benefit under a defined benefit plan
Effective January 1, 2024, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $265,000 to $275,000.
- Defined contribution plan limit
The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2024 from $66,000 to $69,000.