Employee Ownership Blog

IRS Announces 2026 COLA Plan Limits

On November 13, the IRS announced its annual cost-of-living (COLA) increases to plan limits for 2026, which are detailed in Notice 2025-67 (PDF). The most important figures for ESOPs and related plans are:

  • The Section 415 limit on combined employer and employee annual additions to defined contribution plans increases to $72,000, up from $70,000 for 2025.
  • The annual compensation limit on what counts as eligible pay increases to $360,000, up from $350,000 for 2025.
  • The maximum account balance in an ESOP subject to a five-year distribution (account values over this amount can be distributed over periods longer than five years) increases to $1,455,000, up from $1,415,000 for 2025.
  • The dollar amount used to determine the lengthening of the five-year distribution period increases to $290,000, up from $280,000 in 2025 (so the five-year period can be extended by one year for each $290,000 or fraction thereof that the account exceeds $1,455,000, up to a maximum of five additional years).
  • The threshold used in defining a “highly compensated employee” remains at $160,000.
  • The threshold used in defining a “key employee” for top-heavy plan purposes increases to $235,000, up from $230,000 for 2025.
  • The maximum annual 401(k) deferral increases to $24,500, up from $23,500 for 2025.
  • The catch-up 401(k) deferral limit for employees aged 50 and over increases to $8,000, up from $7,500 for 2025, for a total of $32,500 each year, starting in 2026.
  • The SECURE 2.0 Act of 2022 provided a higher 401(k) catch-up contribution limit for employees aged 60 to 63, starting in 2025. For 2026, this higher limit remains $11,250 instead of the regular catch-up limit of $8,000 for 2026.