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Enforce elective deferral limits in tax-facing variables
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Lines changed: 411 additions & 22 deletions

‎changelog.d/enforce-401k-elective-deferral-limits.added.md‎

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Cap traditional and Roth 401(k) and 403(b) contributions at the IRC Section 402(g) elective deferral limit, including age-based catch-ups.

‎policyengine_us/parameters/gov/contrib/crfb/surtax/increased_base/sources.yaml‎

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2010-01-01:
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# Retirement contributions (IRA, 401k, 403b)
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- traditional_ira_contributions
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- traditional_401k_contributions
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- traditional_403b_contributions
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- capped_traditional_401k_contributions
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- capped_traditional_403b_contributions
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# HSA contributions (no Archer MSA variable exists)
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- health_savings_account_ald
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# Deductible student loan interest

‎policyengine_us/parameters/gov/irs/credits/retirement_saving/qualified_retirement_savings_contributions.yaml‎

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@@ -2,21 +2,21 @@ description: The IRA sums the following elements as qualified retirement savings
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values:
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2018-01-01:
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- traditional_ira_contributions
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- traditional_401k_contributions
6-
- traditional_403b_contributions
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- capped_traditional_401k_contributions
6+
- capped_traditional_403b_contributions
77
- roth_ira_contributions
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- roth_401k_contributions
9-
- roth_403b_contributions
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- capped_roth_401k_contributions
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- capped_roth_403b_contributions
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- self_employed_pension_contributions
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- able_contributions_person
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2026-01-01:
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- traditional_ira_contributions
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- traditional_401k_contributions
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- traditional_403b_contributions
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- capped_traditional_401k_contributions
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- capped_traditional_403b_contributions
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- roth_ira_contributions
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- roth_401k_contributions
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- roth_403b_contributions
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- capped_roth_401k_contributions
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- capped_roth_403b_contributions
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- self_employed_pension_contributions
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metadata:

‎policyengine_us/parameters/gov/irs/gross_income/pre_tax_contributions.yaml‎

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2010-01-01:
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# Assumes all are pre-tax.
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# Roth 401(k)/403(b) contributions are post-tax and intentionally excluded.
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- traditional_401k_contributions
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- traditional_403b_contributions
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- capped_traditional_401k_contributions
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- capped_traditional_403b_contributions
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# Only explicit pre-tax payroll health premiums reduce taxable wages.
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- pre_tax_health_insurance_premiums
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# HSA contributions can be either through pre-tax.

‎policyengine_us/parameters/gov/irs/gross_income/retirement_contributions/catch_up/limit/k401.yaml‎

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2023-01-01: 7_500
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2024-01-01: 7_500
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2025-01-01: 7_500
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2026-01-01: 8_000
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metadata:
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uprating:
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parameter: gov.irs.uprating
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# SECURE 2.0 enhanced catch-up begins in 2025
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# The greater of $10,000 or 150% of the standard catch-up
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2025-01-01: 11_250
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2026-01-01: 11_250
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metadata:
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uprating:
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parameter: gov.irs.uprating
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2023-01-01: 7_500
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2024-01-01: 7_500
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2025-01-01: 7_500
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2026-01-01: 8_000
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metadata:
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uprating:
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parameter: gov.irs.uprating
@@ -70,5 +73,7 @@ metadata:
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href: https://www.law.cornell.edu/uscode/text/26/414#v_2_E
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- title: IRS announcement - 401(k) limit increases for 2025
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href: https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000
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- title: IRS announcement - 401(k) limit increases for 2026
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href: https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
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- title: Cost-of-Living Adjustments for Retirement Items
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href: https://www.irs.gov/pub/irs-tege/cola-table.pdf#page=1

‎policyengine_us/parameters/gov/states/ut/tax/property/homeowner_renter_relief/nontaxable_income/sources.yaml‎

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- tax_exempt_interest_income
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- tax_exempt_pension_income
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- tax_exempt_retirement_distributions
11-
- traditional_401k_contributions
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- traditional_403b_contributions
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- capped_traditional_401k_contributions
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- capped_traditional_403b_contributions
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- traditional_ira_contributions
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- self_employed_pension_contributions
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- veterans_benefits

‎policyengine_us/tests/core/test_payroll_contributions.py‎

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PERIOD: pre_tax_health_insurance_premiums
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},
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"tip_income": {PERIOD: tip_income},
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"traditional_401k_contributions": {
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"traditional_401k_contributions_reported": {
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PERIOD: traditional_401k_contributions
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},
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}

‎policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/retirement/k401_catch_up_limit.yaml‎

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output:
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# No enhanced catch-up before 2025
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k401_catch_up_limit: 7_500
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- name: Case 15, age 50 in 2026 receives 2026 standard limit.
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period: 2026
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input:
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age: 50
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output:
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k401_catch_up_limit: 8_000
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- name: Case 16, age 62 in 2026 receives 2026 enhanced limit.
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period: 2026
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input:
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age: 62
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output:
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k401_catch_up_limit: 11_250
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- name: Case 17, age 64 in 2026 reverts to 2026 standard limit.
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period: 2026
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input:
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age: 64
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output:
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k401_catch_up_limit: 8_000

‎policyengine_us/tests/policy/baseline/household/expense/retirement/elective_deferral_limit.yaml‎

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- name: Case 1, reported deferrals below the elective deferral limit.
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period: 2025
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input:
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age: 35
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traditional_401k_contributions: 12_000
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roth_401k_contributions: 8_000
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output:
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elective_deferral_limit: 23_500
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traditional_401k_contributions: 12_000
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roth_401k_contributions: 8_000
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capped_traditional_401k_contributions: 12_000
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capped_roth_401k_contributions: 8_000
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- name: Case 2, legacy deferral inputs above the base elective deferral limit.
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period: 2025
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absolute_error_margin: 0.01
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input:
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age: 35
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traditional_401k_contributions: 20_000
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roth_401k_contributions: 10_000
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output:
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elective_deferral_limit: 23_500
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traditional_401k_contributions: 20_000
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roth_401k_contributions: 10_000
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capped_traditional_401k_contributions: 15_666.67
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capped_roth_401k_contributions: 7_833.33
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pre_tax_contributions: 15_666.67
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- name: Case 3, reported inputs use the enhanced catch-up limit across 401(k) and 403(b) deferrals.
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period: 2025
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absolute_error_margin: 0.01
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input:
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age: 62
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traditional_401k_contributions_reported: 20_000
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roth_401k_contributions_reported: 10_000
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traditional_403b_contributions_reported: 5_000
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roth_403b_contributions_reported: 5_000
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output:
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elective_deferral_limit: 34_750
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capped_traditional_401k_contributions: 17_375
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capped_roth_401k_contributions: 8_687.50
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capped_traditional_403b_contributions: 4_343.75
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capped_roth_403b_contributions: 4_343.75
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- name: Case 4, SECURE 2.0 enhanced catch-up applies from ages 60 through 63.
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period: 2025
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input:
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people:
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person1:
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age: 49
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person2:
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age: 50
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person3:
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age: 59
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person4:
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age: 60
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person5:
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age: 63
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person6:
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age: 64
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output:
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elective_deferral_limit: [23_500, 31_000, 31_000, 34_750, 34_750, 31_000]
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- name: Case 5, capped traditional deferrals reduce income tax wages.
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period: 2025
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input:
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age: 40
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employment_income: 100_000
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traditional_401k_contributions: 50_000
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output:
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traditional_401k_contributions: 50_000
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capped_traditional_401k_contributions: 23_500
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pre_tax_contributions: 23_500
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irs_employment_income: 76_500
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- name: Case 6, capped traditional deferrals do not reduce FICA wages.
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period: 2025
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input:
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age: 40
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employment_income: 100_000
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traditional_401k_contributions: 50_000
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output:
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capped_traditional_401k_contributions: 23_500
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payroll_tax_gross_wages: 100_000
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- name: Case 7, capped Roth deferrals count for the saver's credit.
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period: 2025
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input:
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age: 40
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traditional_401k_contributions: 30_000
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roth_401k_contributions: 17_000
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retirement_distributions: 0
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output:
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capped_traditional_401k_contributions: 15_000
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capped_roth_401k_contributions: 8_500
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savers_credit_qualified_contributions: 23_500
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- name: Case 8, the 2026 standard catch-up applies from ages 50 through 59.
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period: 2026
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input:
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age: 55
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traditional_401k_contributions: 32_500
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output:
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elective_deferral_limit: 32_500
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capped_traditional_401k_contributions: 32_500
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- name: Case 9, the SECURE 2.0 enhanced catch-up applies in 2026.
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period: 2026
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input:
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age: 62
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traditional_401k_contributions: 35_750
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output:
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elective_deferral_limit: 35_750
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capped_traditional_401k_contributions: 35_750
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- name: Case 10, age 64 returns to the standard catch-up in 2026.
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period: 2026
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input:
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age: 64
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traditional_401k_contributions: 35_750
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output:
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elective_deferral_limit: 32_500
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capped_traditional_401k_contributions: 32_500

‎policyengine_us/tests/policy/contrib/crfb/agi_surtax.yaml‎

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traditional_401k_contributions: 30_000
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filing_status: SINGLE
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output:
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# AGI 80k + 401k 30k = 110k expanded base
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# (110k - 100k) * 1% = 100
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agi_surtax: 100
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# AGI 80k + capped 401k 24.5k = 104.5k expanded base
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# (104.5k - 100k) * 1% = 45
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agi_surtax: 45
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- name: Expanded base with tax-exempt interest
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period: 2026

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