404 and 415 Contribution Limits Explained

For Business Owners Maximizing 401(k) Plans

For many business owners, retirement plan regulations can feel like a maze of numbers and code sections. Terms like 404, 415, or 415(c) appear in plan documents and compliance reports, yet what truly matters is how these limits affect the amount you can contribute each year.

Understanding these contribution caps is essential for owners who want to fully fund their retirement while staying compliant. With the right retirement plan consultant guiding the process, those numbers become strategic planning tools rather than compliance obstacles.

What Is the 415(c) Limit in a 401(k)?

Section 415(c) of the Internal Revenue Code sets the annual limit on total contributions that can be allocated to a participant’s 401(k) account in a given year.

For business owners, this is often the most important number to monitor because it determines the maximum amount that can be contributed across multiple sources.

For 2025, the 415(c) limit is $70,000*
For 2026, it increases to $72,000*, reflecting the IRS cost-of-living adjustment.

The IRS typically publishes updated limits in the fall, and these figures have steadily increased over time as inflation adjustments are applied.

*The annual 415(c) limit is the lesser of the stated limit or 100% of the participant’s compensation. For example, a participant earning $50,000 in W-2 wages cannot receive the full $70,000 allocation because contributions cannot exceed their compensation. In that case, the total contribution would be capped at $50,000. For most business owners maximizing contributions, this limit does not typically come into play, but it can matter in situations where a spouse or family member earns a smaller salary through the business.

What Counts Toward the 415(c) Limit?

The 415(c) limit includes nearly all contribution types made to your 401(k), except certain catch-up contributions.

Contributions that count toward the limit include:

Employee salary deferrals, up to $24,500 for 2025
Employer match contributions
Profit sharing contributions
Safe harbor contributions
After-tax contributions, including those intended for backdoor Roth strategies

Each of these sources combines toward the annual 415(c) cap.

For example, if you defer $24,500 and receive employer contributions through match and profit sharing, the total of those amounts must remain within the $70,000 limit for 2025 or $72,000 for 2026.

How Catch-Up Contributions Work

Catch-up contributions operate separately from the 415(c) cap.

For 2025:

Age 50 and over: $8,000 catch-up contribution
Ages 60–63: $11,250 enhanced catch-up contribution

These amounts do not count toward the $70,000 or $72,000 415(c) cap.

A 60-year-old maximizing contributions in 2026 could contribute:

$72,000 under 415(c)
Plus $11,250 enhanced catch-up

Total potential contribution: $83,250

For owners in peak earning years, this structure creates significant opportunities to accelerate retirement savings.

Understanding the Role of Section 404

Section 404 governs employer deductibility limits. While 415(c) caps how much can be allocated to an individual participant, 404 determines how much the business can deduct as a plan expense.

When designing contribution strategies, both sections must be evaluated together. A well-structured plan accounts for allocation limits and deduction limits simultaneously, ensuring contributions are optimized and fully compliant.

Why Compliance Testing Matters

During annual compliance testing, several questions must be answered clearly:

How much was deferred toward the $24,500 limit?
How much was contributed through employer match?
How much profit sharing was allocated?
Were after-tax contributions included?
Did total allocations stay within 415(c) limits?

If contributions exceed the allowable cap, corrective distributions are required. Addressing these adjustments promptly protects the plan’s tax-qualified status and keeps reporting clean.

Proactive monitoring throughout the year reduces the likelihood of corrections and keeps contribution strategies aligned with your goals.

Planning for Maximum Contributions

Contribution limits are more than compliance thresholds. They are planning tools.

Before year-end, business owners should consider:

Target retirement savings goals
Current income levels
Profit expectations
Cash flow needs
Age-based contribution opportunities

A coordinated approach allows contributions to be structured intentionally rather than reactively. When deferrals, employer contributions, and catch-up amounts are aligned strategically, owners can reach the highest allowable contribution levels for the plan year.

Working with a Retirement Plan Consultant Who Understands the Nuance

Sections 404 and 415 contain detailed rules that interact across multiple parts of the tax code. Translating those rules into actionable strategy requires experience and attention to detail.

An experienced retirement plan consultant evaluates:

Allocation design
Deduction strategy
Compliance testing
Age-based enhancements
Correction procedures
Long-term funding goals

The result is a retirement plan that functions as a powerful savings vehicle while maintaining full regulatory compliance.

Building a Stronger Retirement Strategy

Mid-market and small business owners often have the greatest flexibility to design plans that align with personal retirement goals and business objectives. When contribution limits are understood clearly, planning becomes more precise and more effective.

Each year presents an opportunity to refine funding strategies, take advantage of inflation adjustments, and align retirement contributions with income growth. With careful oversight and forward planning, 401(k) limits can be leveraged to build meaningful long-term wealth while maintaining confidence in compliance.

As contribution limits continue to evolve, strategic planning ensures your retirement plan keeps pace with your business success and positions you for sustained financial strength in the years ahead.