United States
Hong KongQualified plans: 401(k) rules, limits and vesting
The 2026 elective deferral limit is USD 24,500, with an USD 8,000 catch-up from 50 and an enhanced USD 11,250 catch-up for ages 60 to 63. Total annual additions are capped at USD 72,000 including employer contributions.
The most common retirement vehicle, and the one with the most examinable detail.
The limits
| Limit | 2026 |
|---|---|
| Elective deferral | USD 24,500 |
| Catch-up, age 50 and over | USD 8,000 |
| Enhanced catch-up, ages 60 to 63 | USD 11,250 |
| Total annual additions | USD 72,000 |
| Compensation taken into account | USD 360,000 |
| Highly compensated employee threshold | USD 160,000 |
The elective deferral limit applies to the individual across all plans; the annual additions limit applies per employer. Someone with two unrelated employers can receive two employer contributions but only one deferral limit.
The 60 to 63 enhanced catch-up is new enough that older material omits it, which makes it a good currency check.
Vesting
Employee deferrals are always immediately vested. Employer contributions may be subject to a vesting schedule.
- Cliff vesting - nothing until a stated point, then fully vested.
- Graded vesting - a rising percentage over a period of years.
- Safe harbor contributions - immediately vested.
- Qualified automatic contribution arrangements - shorter schedules apply.
A client considering leaving a job shortly before a vesting date is a scenario the exam uses, and the answer is usually that the timing is worth checking before resigning.
Testing
Plans must not discriminate in favor of highly compensated employees. Actual deferral percentage and actual contribution percentage tests compare the two groups.
A safe harbor design avoids the testing by making specified employer contributions that are immediately vested. That is why small employers use it, and it is the standard answer to a question about a plan failing testing.
A 401(k) loan is repaid with after-tax dollars and taxed again on withdrawal, the borrowed amount is out of the market, and an unpaid balance on leaving employment becomes a taxable distribution with a penalty if under 59½. It is a last resort, not a facility.
Loans and hardship
Loans are limited to the lesser of 50 per cent of the vested balance or USD 50,000, generally repaid within five years - longer for a principal residence.
Hardship withdrawals require an immediate and heavy financial need, are taxable, and are subject to the early-distribution penalty unless an exception applies. Unlike a loan, the money does not go back.
Roth 401(k)
Same deferral limit as traditional, shared between them. Contributions are after tax and qualified withdrawals are tax free.
There is no income limit, unlike a Roth IRA, which makes it the accessible Roth route for a high earner.
Contribution and benefit limits are indexed annually and several were changed by recent legislation. Confirm the current figure against the IRS before relying on it.
Common questions
What is the 401(k) contribution limit for 2026?
USD 24,500 in elective deferrals, with an USD 8,000 catch-up from age 50 and an enhanced USD 11,250 catch-up for ages 60 to 63. Total annual additions are capped at USD 72,000.
Does the limit apply per plan or per person?
The elective deferral limit is per person across all plans. The annual additions limit is per employer, so two unrelated employers can each make an employer contribution.
What is the difference between cliff and graded vesting?
Cliff vesting gives nothing until a stated point and then full vesting. Graded vesting builds a rising percentage over several years. Employee deferrals are always immediately vested.
Are 401(k) loans a good idea?
Rarely. They are repaid with after-tax dollars and taxed again on withdrawal, the money is out of the market, and an unpaid balance on leaving becomes a taxable distribution.
Is a Roth 401(k) subject to income limits?
No, unlike a Roth IRA. That makes it the accessible Roth route for a high earner, sharing the same deferral limit as the traditional option.