Qualified Plan Contribution Limits

Course: Retirement Planning
Lesson 1: Using IRAs to Build and Distribute More Retirement Income

STUDENT QUESTION

Hope all is well! Wanted to clarify contribution limits for qualified plans.

My understanding is that it's the lesser of 1) An annually indexed amount ($72K for 2026) or 2) 100% of an employee's covered compensation.

This example in a money education question says otherwise (it says 25% rather than 100% of covered compensation).

Is money education wrong, or am I overlooking something?

INSTRUCTOR RESPONSE

You're not overlooking anything. Both percentages can be correct. They're referring to different limits.

For a defined contribution plan, the overall annual additions limit for an employee is the lesser of 100% of compensation or $72,000 for 2026.

The 25% figure is generally referring to the employer contribution/deduction limit, not the overall annual additions limit for the participant.

Let me know any other questions!