The annual additions limit is the maximum total amount that can be contributed to an employee's Gusto 401(k) account in a single plan year. This limit applies to the combined total of all contribution types — not just what an employee personally contributes. The total includes a combination of the employee's personal pre-tax and Roth contributions, employer contributions allocated to the account (like matching), and any forfeitures reallocated to the account. This article explains how the limit works and how it may affect total contributions.
Annual additions must be equal to the lesser of:
100% of the participant's annual compensation (after the compensation limit is applied), or
$72,000 for 2026
The Internal Revenue Service (IRS) may adjust the dollar amount each year based on changes to the cost-of-living index.
Note: Catch-up contributions are not included in the annual additions limit.
If an employee has a higher salary or the plan offers generous employer contributions, the annual additions limit may prevent them from getting all potential contributions to the account.
Example for 2026:
Say an employee earned $300,000 and personally contributed the maximum allowable amount of $24,500. The plan offers a 4% employer match (100% match on up to 4% of salary), which equals $12,000 ($300,000 x 0.04) in matching contributions for the year.
The plan also decides to offer a 20% profit-sharing contribution at year-end. While 20% of $300,000 is $60,000, the plan can only contribute $35,500 ($72,000 – ($24,500 + $12,000)) for this participant. Otherwise, total contributions would exceed the $72,000 annual additions limit.
If a plan is terminated in the middle of a plan year, the IRS requires the allowable dollar limit to be prorated based on the termination date, per IRS regulations.
Example for 2026:
If a calendar-year plan is terminated effective Sep. 30, 2026, then the plan year runs from Jan. 1 to Sep. 30, 2026. The annual additions limit would be prorated using the number of months the plan was active. In this case, the total limit for a participant in 2026 would be $54,000 ($72,000 x (9/12)).