Retirement Planning and Employee Benefits: Limits, Testing, and Timing
This domain tests qualified plan design, the annual limits that govern contributions, nondiscrimination testing, distribution rules, and Social Security claiming. Figures are indexed annually, so the 2025 numbers below are the working reference.
Contribution limits to memorize
401(k) elective deferrals: $23,500, plus $7,500 catch-up at 50 and an $11,250 catch-up for ages 60–63. Total defined contribution limit (415(c)): $70,000. Compensation limit: $350,000; highly compensated employee threshold: $160,000. Traditional and Roth IRA: $7,000 plus $1,000 catch-up. SIMPLE: $16,500 deferral plus $3,500 catch-up. SEP: 25% of compensation, capped at $70,000. Employer contributions vest on a three-year cliff or a two-to-six-year graded schedule; elective deferrals are always 100% vested.
Testing and distributions
Plans must pass ADP/ACP tests unless safe harbor, and top-heavy plans (60%+ of assets for key employees) require minimum contributions. Distributions before 59½ face a 10% penalty with exceptions including death, disability, separation at 55 or later, qualified higher education, first home, and substantially equal periodic payments under 72(t). Required minimum distributions begin at 73. Loans and hardships follow plan terms and are not rights.
Social Security claiming
Full retirement age is 67 for those born 1960 or later. Claiming at 62 cuts the benefit by about 30%; delaying to 70 adds 8% per year of delay. The earnings test withholds benefits above the annual exempt amount before FRA.
Worked example. A client with a $2,400 primary insurance amount at FRA 67 asks about claiming at 62 versus 70. At 62 the benefit is 70% of PIA, or $1,680. At 70 it is 124%, or $2,976. Claiming early collects 96 payments of $1,680, or $161,280 by age 70; the monthly gap is $1,296, so the delayed strategy breaks even about 124 months after age 70-roughly age 80.4-before accounting for cost-of-living adjustments and spousal effects.
Traps
Applying IRA limits to 401(k) plans; forgetting that catch-up contributions are excluded from the 415(c) limit; assuming 72(t) payments can be stopped at will without recapture.