Defined benefit plan or 401(k)?
The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2026 from $70,000 to $72,000.
A limit on what goes into a 401(k) or another defined contribution account. A defined benefit plan is not limited by it. Read IRS Notice 2025-67 in full (opens in a new tab)
The short answer
A 401(k) caps what goes into each account, $72,000 of total additions for 2026, while a defined benefit plan caps the yearly benefit it may pay, $290,000 for 2026. An enrolled actuary sets the defined benefit contribution each year, and an owner can run both plans at once under a combined deduction rule. The defined benefit plan asks more of the owner: a mandatory yearly contribution, an actuary, and the investment risk.
What is the difference between a defined benefit plan and a 401(k)?
A 401(k) gives each person an account, and the law caps what goes in at $72,000 of total additions for 2026. A defined benefit plan promises a yearly benefit at retirement, and the law caps that benefit at $290,000 for 2026. An enrolled actuary then figures the contribution needed to fund the promise.
IRS Notice 2025-67 (opens in a new tab)| Rule | Defined benefit plan | 401(k) plan | Source |
|---|---|---|---|
| What the law calls it | Any plan that is not a defined contribution plan. | A defined contribution plan: an account for each person, worth what goes in plus or minus what the account earns. | 26 U.S.C. 414(i) and (j) (opens in a new tab)IRS, 401(k) plans page (opens in a new tab) |
| What the 2026 limit caps | The annual benefit: $290,000, or 100 percent of average pay for the highest 3 years if lower. No dollar limit on the contribution. | Total additions to the account: $72,000, not counting catch-up contributions. | IRS Notice 2025-67 (opens in a new tab)26 U.S.C. 415(b)(1)(B) (opens in a new tab)IRS, One-participant 401(k) plans page (opens in a new tab) |
| The employee’s own deferral, 2026 | Generally none. The employer makes most contributions. | $24,500. A catch-up of $8,000 generally applies for individuals aged 50 or over, and a catch-up of $11,250 applies for individuals who attain age 60, 61, 62, or 63 in 2026. | IRS Notice 2025-67 (opens in a new tab)Internal Revenue Service, Defined benefit plan page (opens in a new tab) |
| Pay the plan may count, 2026 | $360,000 | $360,000 | IRS Notice 2025-67 (opens in a new tab) |
| Who sets the yearly amount | An enrolled actuary figures the minimum and the deduction limit each year. | The employee chooses the deferral. The plan document sets any employer contribution. | Internal Revenue Service, Publication 560 (opens in a new tab) |
| Is a contribution required every year? | Yes. The minimum is due eight and a half months after the plan year ends, and an unpaid minimum is taxed at 10 percent. | The federal minimum funding rules do not apply. The plan document sets any required employer contribution. | 26 U.S.C. 430(j)(1) (opens in a new tab)26 U.S.C. 4971(a)(1) (opens in a new tab)26 U.S.C. 412(e)(2)(A) (opens in a new tab) |
| Who carries the investment risk | The employer. Benefits do not depend on asset returns. | The employee. The account rises and falls with its investments. | Internal Revenue Service, Defined benefit plan page (opens in a new tab)26 U.S.C. 414(i) and (j) (opens in a new tab) |
| Vesting of employer money | Cash balance plan: fully vested after 3 years of service. Traditional plan: fully vested after 5 years, or 20 percent after 3 years rising to 100 percent after 7. | The employee’s own deferrals are always fully vested. Employer money follows the plan’s schedule within federal limits. | 26 U.S.C. 411(a)(13)(B); 26 U.S.C. 411(a)(2)(A)(ii); 26 U.S.C. 411(a)(2)(A)(iii) (opens in a new tab)26 U.S.C. 401(k)(2)(C) (opens in a new tab) |
| Tax when money comes out | Taxed as income when paid. The plan generally pays nothing to a working participant before age 59½, and a payment before 59½ carries a 10 percent additional tax unless an exception applies. | Taxed as income when paid, except a qualified payment from a Roth account. A payment before age 59½ carries a 10 percent additional tax unless an exception applies. | 26 U.S.C. 402(a) (opens in a new tab)26 U.S.C. 72(t)(1) (opens in a new tab)IRS, 401(k) plans page (opens in a new tab) |
Is a 401(k) a defined benefit plan?
No. A 401(k) is a defined contribution plan. The IRS describes it as a feature of a profit-sharing plan that lets employees put part of their wages into individual accounts. The tax code defines a defined benefit plan as any plan that is not a defined contribution plan, so one plan can never be both.
The difference decides what the law limits. In a 401(k) the account is what the employee receives, so the law caps what goes in. In a defined benefit plan the promised payment is what the employee receives, so the law caps the payment, and the deposit is whatever an actuary says the promise costs.
IRS, 401(k) plans page (opens in a new tab)26 U.S.C. 414(i) and (j) (opens in a new tab)Can I have both a 401(k) and a defined benefit plan?
Yes. The IRS says an employer with a defined benefit plan can have other retirement plans, and a 401(k) is the usual partner. When the two plans cover the same people, section 404(a)(7) of the tax code caps the combined deduction, with exceptions that matter for a small plan.
The cap is the greater of 25 percent of covered pay or the defined benefit minimum. Employer contributions to the 401(k) of up to 6 percent of pay are left out of the cap, and employee deferrals never count toward it. The cap does not apply at all to a defined benefit plan the PBGC covers. The PBGC, the federal pension insurer, does not cover a professional practice’s plan that has never had more than 25 active participants at any time after September 2, 1974, or a plan kept only for substantial owners.
26 U.S.C. 404(a)(7)(A); 26 U.S.C. 404(a)(7)(C)(iii); 26 U.S.C. 404(a)(7)(C)(iv) (opens in a new tab)29 U.S.C. 1321(b)(13) (ERISA 4021(b)(13)); 29 U.S.C. 1321(b)(9) and (d) (opens in a new tab)Is a defined benefit plan better than a 401(k)?
The law does not rank them; each plan caps a different thing. A 401(k) caps what goes in, so its ceiling moves only with the catch-up for older workers. A defined benefit plan caps the benefit, so older owners can contribute more because fewer years remain to fund the same capped benefit.
The IRS says businesses can generally contribute, and deduct, more each year in a defined benefit plan, and that these plans cost more to set up and run. Which design fits depends on the owner’s age, pay, staff and the deduction wanted, and the actuary’s proposal shows the result for each.
Internal Revenue Service, Defined benefit plan page (opens in a new tab)What does a defined benefit plan ask of an owner that a 401(k) does not?
The IRS lists the defined benefit plan as the most costly type of plan and the most administratively complex one. The contribution is mandatory each year within the range the enrolled actuary certifies, and an unpaid minimum is taxed at 10 percent, then 100 percent if the amount stays unpaid.
The employer bears the investment risk. Benefits do not depend on asset returns, so a shortfall raises future contributions. The money stays in the plan until age 59½, separation from service or the end of the plan, and a distribution before 59½ carries a 10 percent additional tax unless an exception applies. Staff must be covered and credited under federal tests. Fees for the actuary, the administrator and the filings are paid every year.
Internal Revenue Service, Defined benefit plan page (opens in a new tab)26 U.S.C. 4971(a)(1); 26 U.S.C. 4971(b); 26 U.S.C. 72(t)(1) (opens in a new tab)Checked on October 15, 2026.