2026 Cost-of-Living Adjustments Applicable to Certain Employee Benefit Plans

The IRS on Nov. 17, 2025, announced the cost-of-living adjustments for limitations applicable to employee benefit plans under the Internal Revenue Code (the Code) for 2026, including an unexpected increase to the Roth "catch-up" wage threshold, which is used for purposes of determining which eligible participants will be required to make Roth catch-up contribution for 2026.

Elective Deferral Contributions

For calendar year (CY) 2026, the annual limitation under Code Section 402(g)(1) on the amount of elective deferrals to Code Section 401(k) plans (other than "SIMPLE" 401(k) Plans), Code Section 403(b) plans and Code Section 457(b) plans is increased from $23,500 to $24,500. Also for CY 2026, 1) the annual limitation under Code Section 414(v)(2)(B)(i) will increase from $7,500 to $8,000 for additional elective deferrals that participants age 50 or older will be allowed to make as catch-up contributions to 401(k) plans (other than "SIMPLE" 401(k) plans), 403(b) plans and 457(b) governmental plans) and 2) the annual limitation for "super catch-up" contributions under Code Section 414(v)(2)(E)(i) for individuals age 60, 61, 62 or 63 in 2026 will remain at $11,250. 

Roth Catch-Up Wage Threshold 

The Roth catch-up contribution wage threshold for 2025 increased from $145,000 to $150,000. This threshold is used to determine which employees will be required to make Roth catch-up contributions in 2026. Specifically, any employee age 50 or older whose 2025 Federal Insurance Contributions Act (FICA) wages (Box 3 on Form W-2) exceed $150,000 will not be eligible to make pre-tax catch-up contributions in 2026.

Annual Compensation Limit 

For plan years beginning in 2026, the annual compensation that a qualified plan may take into account under Code Sections 401(a)(17) and 404(l) is increased from $350,000 to $360,000.

Highly Compensated Employees

For plan years beginning in 2026, the compensation threshold used in the definition of "highly compensated employee" under Code Section 414(q)(1)(B) will remain at $160,000. Because the compensation used to determine highly compensated employee status for a particular plan year is compensation for the prior plan year, 1) for determining highly compensated employee status in the plan year beginning in 2026, the relevant compensation will be compensation for the plan year beginning in 2025, and the threshold for that year was $160,000, and 2) for determining highly compensated employee status in the plan year beginning in 2025, the relevant compensation will be compensation for the plan year beginning in 2024, and the threshold for that year was $155,000.

Defined Contribution and Defined Benefit Plan Limits 

For limitation years ending in 2026, the annual addition limitation for defined contribution plans under Code Section 415(c)(1)(A) is increased from $70,000 to $72,000, and the annual benefit limitation for defined benefit plans under Code Section 415(b)(1)(A) is increased from $280,000 to $290,000.

"Key Employee" for Top-Heavy Plan Rules 

For plan years beginning in 2026, the dollar limitation used to determine which officers will be "key employees" under Code Section 416(i)(1)(A)(i) for purposes of the top-heavy plan rules is increased from $230,000 to $235,000.

FICA Wage Base 

For the 2026 calendar year, the FICA taxable wage base is increased from $176,100 to $184,500.

Annual Health FSA Limit

For taxable years beginning in 2026, the dollar limitation under Code Section 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is increased from $3,400 to $3,500.

If you have questions regarding the cost-of-living adjustments or any other employee benefit plan issues, contact the authors or another member of Holland & Knight's Executive Compensation and Benefits Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.