What Is the 401(k) Annual Compensation Limit? ($360,000 for 2026)
The 401(k) annual compensation limit is $360,000 for 2026, up from $350,000 in 2025 (IRC §401(a)(17)). It caps how much of your pay a plan may count when it applies contribution formulas like an employer match, and it does not cap your own contributions. Someone earning $500,000 can still defer the full $24,500.
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$360,000
Maximum pay a plan may take into account in contribution and testing formulas · up from $350,000 in 2025
Source: IRC §401(a)(17); IRS Notice 2025-67
What does the compensation limit actually cap?
It caps only the pay a plan is allowed to count. Every formula inside a 401(k) that runs off compensation, including the employer match, profit-sharing allocations, and nondiscrimination testing, has to treat anyone earning above $360,000 in 2026 as though they earned exactly $360,000 (IRC §401(a)(17)).
What it does not do is cap your own contributions, and this is the most common misreading of the whole rule. If you have been told that earning a lot means you cannot max out your 401(k), that is simply not how this works.
Your deferrals are governed by the 402(g) limit of $24,500 for 2026, and nothing about earning $400,000 or $4 million changes that number. A high earner keeps every limit everyone else has, including the full $24,500 in deferrals, the catch-up at 50 and older, and the $72,000 415(c) total. The compensation cap only shrinks what percentage-of-pay formulas produce.
How the cap limits your employer match: a worked example
Where the limit actually bites is the employer match. Match formulas are written as percentages of compensation, and the compensation feeding the formula stops counting at $360,000. Everything you earn above that line is invisible to the match calculation.
| Actual salary | $500,000 |
| Uncapped match would be (5% × $500,000) | $25,000 |
| Compensation the plan may count | $360,000 (§401(a)(17) cap) |
| Maximum match actually allowed (5% × $360,000) | $18,000 |
How the comp limit affects my match
| Your salary | Pay the plan may count | Match at 5% of counted pay | Match if there were no cap | Match you lose to the cap |
|---|---|---|---|---|
| $200,000 | $200,000 | $10,000 | $10,000 | $0 |
| $300,000 | $300,000 | $15,000 | $15,000 | $0 |
| $400,000 | $360,000 | $18,000 | $20,000 | $2,000 |
| $500,000 | $360,000 | $18,000 | $25,000 | $7,000 |
| Your salary | $_______ |
| Pay the plan may count (the lesser of your salary or $360,000) | $_______ |
| Your plan’s match rate, as a percentage of pay | _______% |
| Your maximum match (counted pay × match rate) | $_______ |
Notice that the first two rows lose nothing. Below $360,000 the cap simply does not apply, so a $300,000 earner feels no effect at all. The cap only reaches people paid above $360,000, and even then it trims the match rather than the ability to contribute. Substitute your own plan’s match rate for the 5% used here, since formulas vary widely and many are structured as a match on the first few percent of pay rather than a flat percentage.
One practical wrinkle is worth raising with your administrator. Because deferral elections are usually set as a percentage of each paycheck, a high earner who reaches the counted-compensation cap partway through the year can see contributions handled differently by different payroll systems. If your pay will exceed $360,000, ask how your plan applies the cap across the year so you do not accidentally leave match on the table. Plan administration varies on this point, and your plan document controls.
Purpose of the compensation limit
There are two reasons for the cap, and both are about keeping the 401(k)’s tax break within bounds Congress considered defensible.
- Fairness across the plan. Qualified plans get their tax advantages on the condition that they do not function primarily as executive-compensation vehicles. Without a cap, a percentage match would deliver unlimited employer dollars to the highest-paid employees while rank-and-file workers received a small fraction of that. Capping counted compensation keeps the ratio of employer money between the top and bottom of the pay scale inside a defined range.
- Limiting the tax expenditure. Employer contributions are tax-deductible to the company and tax-deferred to the employee. The cap bounds how much deduction and deferral a single highly paid person can generate through a qualified plan.
Annual compensation limit by year (2021–2026)
If you are checking a prior year’s match calculation, here is the counted-pay ceiling for each of the last six years.
| Year | Compensation limit |
|---|---|
| 2026 | $360,000 |
| 2025 | $350,000 |
| 2024 | $345,000 |
| 2023 | $330,000 |
| 2022 | $305,000 |
| 2021 | $290,000 |
The limit is inflation-indexed and rounds in $5,000 increments. The IRS announces it each fall in the COLA notice alongside the other 401(k) limits, and for 2026 that notice is IRS Notice 2025-67.
The compensation limit vs. the HCE threshold
These are two different numbers doing two different jobs, and high earners are usually subject to both at once. Here is how they separate.
- The compensation limit ($360,000, §401(a)(17)) caps the pay that plan formulas may count. It is a math input, nothing more.
- The HCE threshold ($160,000, §414(q)) classifies who counts as highly compensated for ADP and ACP nondiscrimination testing, based on prior-year pay. Pay above $160,000 in 2025 makes you an HCE for 2026 testing. If the plan fails testing, HCEs can have contributions refunded to them.
So an employee earning $500,000 is an HCE, which brings testing risk, and has formula compensation capped at $360,000. Those are two separate mechanisms that happen to be triggered at very different income levels.
Effect on nondiscrimination testing
The same $360,000 cap applies when a plan computes contribution percentages for ADP and ACP testing. Capping the denominator actually helps high earners slightly in the testing math.
Deferring $24,500 on $500,000 of real pay works out to 4.9%, but measured against capped pay of $360,000 the same contribution counts as about 6.8%. The cap is applied consistently everywhere compensation appears in plan math, which is why it can cut against you in the match and in your favor in the test.
Frequently asked questions
Can I still contribute to my 401(k) if I earn more than $360,000?
Yes, fully. The compensation limit does not restrict your own deferrals at all. You can contribute the complete $24,500 for 2026, plus the $8,000 catch-up at 50 and older, or $11,250 at ages 60–63. Only percentage-of-pay formulas like the match are computed on capped compensation.
What is the 401(k) compensation limit for 2026?
$360,000, up from $350,000 in 2025, under IRC §401(a)(17) and IRS Notice 2025-67. It is the maximum pay a qualified plan may take into account for contribution formulas and testing.
Is there an income level at which you can’t contribute to a 401(k)?
No. Unlike a Roth IRA, a 401(k) has no income ceiling for participation. Any eligible employee can defer up to the 402(g) limit regardless of salary. High income affects the match math through this cap and your testing status through the HCE rules, but it never affects eligibility.
What compensation counts toward the $360,000?
It is the plan’s own definition of compensation, typically W-2 pay or a close variation, as written in the plan document. Plans are allowed to exclude items like bonuses or overtime from that definition, so the pay your formula runs on can differ from your gross income. Your summary plan description spells out exactly what counts.
Does the compensation limit apply to each employer separately?
Yes. Like the 415(c) limit, §401(a)(17) applies plan by plan. If you have two unrelated employers, each plan applies its own $360,000 cap to the pay that employer provides.
Related reading
- All 401(k) contribution limits for 2026
- Highly compensated employees: the $160,000 threshold and testing refunds
- How the 401(k) employer match works
Sources: IRC §401(a)(17) · IRS Notice 2025-67 (2026 limits) · IRS: 401(k) contribution limits