2025 Defined Benefit Plan Limit
For 2025, the Defined Benefit Plan Limit figures are $280,000 (Annual benefit under a defined benefit plan) and $70,000 (Defined contribution plan limit).
Effective 2025-01-01Source: Notice 2024-80 (IRS)Verified 2026-09-02
Compared with 2024
| Item | 2024 | 2025 | Change |
|---|---|---|---|
| Annual benefit under a defined benefit plan | $275,000 | $280,000 | +$5,000 (+1.8%) |
| Defined contribution plan limit | $69,000 | $70,000 | +$1,000 (+1.4%) |
Who it applies to
Sponsors and participants of defined benefit plans and defined contribution plans subject to IRC Section 415.
What changed this year, and why
For 2025, the IRS adjusted retirement plan limits under Section 415 of the Internal Revenue Code for cost-of-living increases, as published in Notice 2024-80.
Common questions
- What is the 2025 annual benefit limit for a defined benefit plan?
- The limitation on the annual benefit under a defined benefit plan is $280,000 for 2025, effective January 1, 2025, increased from the prior year's limit.
- What is the 2025 defined contribution plan limit?
- The limitation for defined contribution plans is $70,000 for 2025, increased from the prior year's limit.
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
For 2025, a participant in a defined benefit plan cannot receive an annual benefit that exceeds the lesser of two amounts: 100% of the participant's average compensation for their highest 3 consecutive calendar years, or $280,000. This means the actual limit depends on your pay history. If your average compensation over your best 3-year period is less than $280,000, then that lower figure becomes your cap. The $280,000 limit is scheduled to increase to $290,000 for 2026. The rule ensures that defined benefit plan payouts are tied to actual earnings and prevents disproportionately large benefits for highly compensated participants.
Defined benefit plan. For 2025, 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. $280,000 for 2025 ($290,000 for 2026).
Publication 560 (2025), Retirement Plans for Small Business (IRS)
What makes a plan a defined benefit plan
A defined benefit plan is defined by what it is not: any plan that is not a defined contribution plan falls into this category. Instead of specifying a fixed contribution amount each year, a defined benefit plan promises a specific benefit to participants at retirement. The employer's annual contribution is then determined by calculating what amount must be set aside, based on actuarial assumptions, to fund those promised benefits. Because the contribution depends on factors such as participant ages, expected retirement dates, mortality tables, and interest rates, the plan requires ongoing actuarial valuation. This is why defined benefit plans typically need continuing professional assistance to maintain. The promised benefit may be expressed as a fixed dollar amount or as a formula based on compensation and years of service, but regardless of the formula used, the plan must satisfy the annual benefit limit and other qualification rules that apply to tax-favored retirement arrangements.
A defined benefit plan is any plan that isn't a defined con- tribution plan.
Publication 560 (2025), Retirement Plans for Small Business (IRS)
The compensation an employer may take into account
When calculating contributions and benefits under a qualified retirement plan, an employer cannot take into account compensation above a certain ceiling for each employee. For 2025, the maximum compensation that may be considered is $350,000 per employee. This means that even if an employee earns more than $350,000, the employer uses only $350,000 when applying percentage-based contribution formulas or benefit accrual rates. The compensation limit is adjusted annually for inflation; for 2026, it increases to $360,000. This cap affects both defined benefit and defined contribution plans, ensuring that tax-favored retirement savings are calculated on a reasonable measure of pay rather than allowing disproportionately large contributions for the highest earners. The limit applies separately to each participant in the plan, so a plan with multiple employees applies the $350,000 ceiling individually to each person's compensation when determining allowable contributions or benefits.
The maximum compensation that can be taken into account for each employee in 2025 is $350,000 ($360,000 in 2026).
Publication 560 (2025), Retirement Plans for Small Business (IRS)
The separate limit on a defined contribution plan
A defined contribution plan is subject to its own separate annual limit on the total additions to each participant's account. For 2025, the sum of employer contributions, employee contributions, and forfeitures allocated to a participant's account (excluding earnings) cannot exceed the lesser of 100% of the participant's compensation or $70,000. Because the plan uses whichever of the 2 figures is smaller, a participant earning less than $70,000 will have additions limited to their actual pay rather than the dollar cap. The dollar limit is adjusted periodically for cost-of-living increases; for 2026 it rises to $72,000. Catch-up contributions made by participants who are age 50 or older are not counted toward this ceiling. This limit is distinct from the defined benefit plan limit and applies independently, so an employer maintaining both types of plans must satisfy each set of rules separately for its participants.
1. 100% of the participant's compensation. 2. $70,000 for 2025 ($72,000 for 2026).
Publication 560 (2025), Retirement Plans for Small Business (IRS)
Why the deduction has to be figured by an actuary
Unlike a defined contribution plan where the employer simply contributes a set amount each year, a defined benefit plan promises a specific future benefit to participants. Determining how much the employer must contribute today to fund that future benefit requires complex calculations involving mortality tables, interest rate assumptions, expected salary increases, and the timing of benefit payments. Because these actuarial assumptions and computations directly affect the tax deduction the employer may claim for plan contributions, the IRS requires that a qualified actuary figure the deduction limit. The employer cannot calculate this amount using simple formulas or spreadsheets alone. The actuary certifies that the contributions are sufficient to meet the plan's benefit obligations and that the deduction claimed does not exceed the amount needed to fund the benefits within the legal limits, including the $280,000 annual benefit cap. This professional requirement ensures that defined benefit plan deductions are based on sound actuarial principles rather than employer estimates.
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 (2025), Retirement Plans for Small Business (IRS)
How many employees the plan has to cover
Under IRS rules for 2025, a defined benefit plan must cover at least the lesser of 50 employees or the greater of 40% of all employees or 2 employees. If the employer has only one employee, that employee must be covered by the plan. This minimum coverage requirement ensures that qualified defined benefit plans benefit a sufficient number of employees to maintain their tax-qualified status. The plan must also satisfy nondiscrimination rules so that benefits do not favor highly compensated employees. Meeting this coverage threshold is one of several qualification requirements that defined benefit plans must satisfy, along with rules about asset protection, vesting standards, and contribution and benefit limits.
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 (2025), Retirement Plans for Small Business (IRS)
The plan has to exist before the year it covers ends
To claim a tax deduction for contributions made to a defined benefit plan for a given tax year, the plan must be formally adopted by December 31 of that year. This set-up deadline applies to all qualified plans, including defined benefit plans. If the plan is not established by the last day of the tax year, contributions made for that year cannot be deducted. There is a special exception for sole proprietors with new section 401(k) plans who are the only participant - their elective deferrals must be paid to the plan before the filing deadline for their tax return. However, for defined benefit plans and other qualified plans, the plan must exist before the year ends in order for employer contributions to be deductible for that year.
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 (2025), Retirement Plans for Small Business (IRS)
Contributions above the deduction limit are not lost, just delayed
When an employer contributes more to a defined benefit plan than can be deducted in a given tax year, the excess amount is not forfeited. Instead, the excess contribution can be carried over and deducted in future years, combined with the employer's regular contributions for those years. However, there is an annual limit on how much can be deducted: the combined deduction in any later year cannot exceed 25% of the participating employees' compensation for that year. For self-employed individuals, this percentage limit must be further reduced to calculate the maximum deduction for contributions made on their own behalf. While the carryover provision prevents the loss of excess contributions, the amounts carried forward may still be subject to the excise tax on nondeductible contributions, depending on the circumstances. This system allows employers to smooth out their retirement plan contributions over time while maintaining annual deduction limits tied to employee compensation levels.
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. Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year.
Publication 560 (2025), 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
In general, if an employer contributes more than the deduction limit to a qualified retirement plan, a 10% excise tax applies to the nondeductible contributions. However, there is an important special rule for defined benefit plans: the 10% excise tax does not apply to contributions made to meet the minimum funding requirements in a defined benefit plan. Even if such a contribution exceeds the employer's earned income from the trade or business for which the plan is established, the excess is not subject to this excise tax. This exception recognizes that defined benefit plans have mandatory minimum funding standards that must be met regardless of the employer's current income. The excise tax does apply to nondeductible contributions to qualified pension and profit-sharing plans and to SEPs that exceed the deduction limits, and must be reported on Form 5330.
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 (2025), 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 2024-80 (IRS)
- Annual benefit under a defined benefit plan
Effective January 1, 2025, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $275,000 to $280,000.
- Defined contribution plan limit
The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2025 from $69,000 to $70,000.