Alert: NQDC Participants Affected By 2025 Contribution Limits For Qualified Retirement Plans
For NQDC plan participants, it’s time again to make like an autumn squirrel and decide how much to store for the future. In November and December, many executives and key employees who participate in nonqualified deferred compensation (NQDC) plans must decide how much of next year’s salary to defer. Factors in this decision about nonqualified plans include the IRS limits that apply to qualified retirement plans. The IRS just set the 2025 contribution limits for qualified retirement plans.
These contribution limits on qualified plans are the major reason for the existence of nonqualified plans: to allow executives and key employees to squirrel away additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.
If you’ve already maxed out your qualified plan contributions for 2024, you will probably do the same in 2025, so you will need NQDC plans to defer salary and bonus increases you expect in 2024. Also, if you believe tax increases are on the way and will affect you, you may feel a growing need to defer income.
| Contribution type/limit | 2024 | 2025 |
|---|---|---|
| Compensation limit in qualified deferral and match calculation | $345,000 | $350,000 |
| Elective compensation deferrals, such as 401(k) and 403(b) | $23,000 | $23,500 |
| Catchup contribution for people aged 50 or older | $7,500 | $7,500 |
| Total defined contribution limit (employee and employer contributions) | $69,000 + catchup contribution |
$70,000 + catchup contribution |
| Defined benefit plan payout limit | $275,000 | $280,000 |
| Income threshold defining key employees for top-heavy plans and six-month delay on payout upon separation | $220,000 | $230,000 |
| Income threshold defining highly compensated employees for nondiscrimination testing; this also applies to income point where companies can exclude employees from a tax-qualified ESPP | $155,000 | $160,000 |
Set by the Social Security Administration, the Social Security wage cap will rise to $176,100 in 2025, up from $168,600 in 2024. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding is $10,453.20 in 2024 and will rise to $10,918.20 in 2025. Social Security tax (up to the yearly limit) and Medicare tax (uncapped) are withheld at the time of deferral, as shown by an FAQ at myNQDC with an annotated diagram of Form W-2 showing where these amounts are included.
For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC. See also our FAQ on the top NQDC-related issues in year-end planning.
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