Internal Revenue Bulletin 2025-49

Executive Summary: 2026 Inflation Adjustments & DISC Rates

This bulletin delivers crucial updates for tax practitioners as we approach 2026. Notice 2025-67 announces the inflation-adjusted figures for various retirement plan limitations under Section 415, which sets the overall "ceiling" for qualified plan benefits and contributions. Taxpayers will generally be able to save more in their 401(k)s, IRAs, and other retirement accounts in 2026, but higher-income earners face new Roth contribution mandates courtesy of the SECURE 2.0 Act. Specifically, the elective deferral limit for 401(k) and 403(b) plans sees a substantial $1,000 increase, while IRA contribution limits also rise. However, high earners exceeding $150,000 in prior-year wages now face mandatory Roth (after-tax) catch-up contributions to their retirement accounts. Simultaneously, Revenue Ruling 2025-23 sets the base period Treasury bill rate for Domestic International Sales Corporation (DISC) shareholders at 4.08% for the period ending September 30, 2025, impacting the interest charge on deferred export income.

Deep Dive: DISC Shareholders Face 4.08% Interest Charge

Revenue Ruling 2025-23 addresses the interest charge applicable to shareholders of Domestic International Sales Corporations (DISCs), as governed by Section 995(f) of the Internal Revenue Code. Section 995(f) stipulates that DISC shareholders must pay interest each taxable year on their "DISC-related deferred tax liability," which represents the tax that has been deferred on qualified export income. The amount of interest owed is determined by multiplying the deferred tax liability by the "base period T-bill rate."

The ruling announces that the "base period T-bill rate" for the period ending September 30, 2025, is 4.08 percent. Section 995(f)(4) defines the base period T-bill rate as the annual interest rate equivalent to the average of the 1-year constant maturity Treasury yields, as published by the Board of Governors of the Federal Reserve System, for the 1-year period ending on September 30 of the calendar year ending with (or of the most recent calendar year ending before) the close of the taxable year of the shareholder.

In the context of tax law, Domestic International Sales Corporations (DISCs) are entities designed to provide a tax incentive for U.S. companies to increase their exports. An Interest Charge DISC (IC-DISC) allows exporters to defer federal income tax on a portion of their export income, up to $10 million of qualified export receipts. The interest charge essentially offsets the benefit of tax deferral, albeit often at a rate considered favorable compared to typical tax liabilities, making the IC-DISC a valuable tax planning tool for certain businesses. As seen in the 2021 Mazzei v. Commissioner case, the courts have upheld the validity of DISC structures, even acknowledging their inherent "lack of substance" as shell companies, because Congress explicitly authorized their use.

The implication for tax practitioners is that they must use the 4.08% rate when calculating the interest charge for DISC shareholders for the relevant period. Furthermore, as mandated by Section 6622, interest must be compounded daily. The ruling includes a table of factors for compounding the 4.08% base period T-bill rate daily for any number of days in the shareholder's taxable year. This table allows for easy calculation of the interest charge by multiplying the shareholder's DISC-related deferred tax liability for the year by the factor corresponding to the number of days in their taxable year. While the table is not replicated in the ruling's summary, its purpose is to provide the daily compounding factors necessary for accurate interest calculation, particularly for short taxable years, 52-53 week taxable years, or leap years.

Deep Dive: Employer Plan Limits (401k, 403b, DB/DC)

Following the guidance on DISC interest calculations, Notice 2025-67 turns to inflation adjustments for qualified retirement plans under Section 415, which sets forth dollar limitations on benefits and contributions. Section 415(d) mandates the Secretary of the Treasury to annually adjust these limits for cost-of-living increases, employing adjustment procedures similar to those used for Social Security benefit amounts under Section 215(i)(2)(A) of the Social Security Act. These adjustments affect various limitations applicable to deferred compensation plans.

The Rule: Notice 2025-67 announces the inflation-adjusted limits for employer-sponsored retirement plans for the 2026 tax year. Specifically, the notice addresses changes to Section 402(g) limits for elective deferrals, Section 415 limits for defined benefit and defined contribution plans, catch-up contribution limits, and compensation limits under Section 401(a)(17).

The Context: These adjustments are a direct result of inflation, impacting the amounts that individuals can save in tax-advantaged retirement accounts. The SECURE 2.0 Act of 2022 introduced some complexities, such as the "Super Catch-up" provision and the Roth catch-up requirement for high earners, which are also considered in the context of these annual adjustments. For example, Section 603 of the SECURE 2.0 Act requires high earners (those with prior-year FICA wages exceeding a threshold, set at $150,000 for 2026 contributions based on 2025 wages) to make catch-up contributions on a Roth (after-tax) basis. This rule was initially set to take effect in 2024 but was delayed until January 1, 2026, following IRS Notice 2023-62, which established an "administrative transition period."

The Implication: Several key limits are changing, impacting both employees and employers:

1. Elective Deferral Limit (Section 402(g)): The limit for elective deferrals to 401(k), 403(b), and 457(b) plans increases from $23,500 in 2025 to $24,500 in 2026. This $1,000 increase is notable because the jump between 2024 and 2025 was only $500. This impacts employees' ability to maximize pre-tax savings and requires employers to update their payroll systems to reflect the new limit.

2. Section 415 Limits: Section 415 provides the overall "ceiling" for qualified plan benefits and contributions. The defined benefit (DB) plan annual benefit limit under Section 415(b) rises to $290,000, while the defined contribution (DC) plan annual additions limit under Section 415(c) increases to $72,000. "Annual additions" are defined as the sum of employer contributions, employee contributions, and any forfeitures allocated to the account. These limits affect highly compensated employees and plan design for both DB and DC plans. Catch-up contributions (both regular and "Super") are excluded from the Section 415(c) limit.

3. Catch-Up Contribution Limits: The "standard" catch-up contribution limit for those age 50 and over in 401(k), 403(b), and governmental 457(b) plans increases from $7,500 to $8,000 for 2026. However, the "Super Catch-up" for those aged 60-63, introduced by SECURE 2.0, remains at $11,250. Although the 'regular' catch-up limit increased, the "Super Catch-up" stays flat because the 150% multiplier of the 2024 base amount ($7,500) still governs its initial implementation. Specifically, Section 109 of SECURE 2.0 established the "Super Catch-up" limit for participants aged 60-63 as the greater of $10,000 or 150% of the regular catch-up limit in effect for 2024. That calculation yields a limit of $11,250 (1.5 * $7,500). Inflation indexing of this amount did not result in an increase for 2026. Furthermore, the aforementioned SECURE 2.0 Act provisions mandating Roth treatment for catch-up contributions by high earners with wages exceeding $150,000 begin to apply in 2026, adding complexity to plan administration. If a plan does not offer a Roth option, these high earners will be unable to make catch-up contributions.

4. Compensation Limit (Section 401(a)(17)): The compensation limit under Section 401(a)(17), which restricts the amount of compensation that can be considered for benefit accruals and contributions, increases to $360,000. This adjustment ensures that plans do not provide excessive benefits to highly compensated employees and affects plan design and compliance testing.

Deep Dive: IRAs, Roths, and High-Earner Thresholds

Notice 2025-67 details inflation adjustments affecting individual retirement arrangements (IRAs), Roth IRAs, and related savings incentives. The IRS is updating contribution limits, income phase-out ranges, and eligibility thresholds to reflect cost-of-living increases as mandated by the tax code. These adjustments are especially pertinent in light of the SECURE 2.0 Act, which introduced significant changes to retirement savings rules.

The annual contribution limit for traditional and Roth IRAs sees an increase from $7,000 to $7,500. This change allows individuals to save more within these tax-advantaged accounts. As background, a traditional IRA allows pre-tax contributions to grow tax-deferred, while a Roth IRA permits after-tax contributions with tax-free growth and withdrawals, subject to certain conditions.

Roth IRA income phase-out ranges also experience upward adjustments. For married couples filing jointly, the income phase-out range increases to between $242,000 and $252,000. This means that married couples with modified adjusted gross income (MAGI) below $242,000 can contribute the full amount to a Roth IRA, while those with MAGI above $252,000 are ineligible to contribute. Those with MAGI within the range can contribute a reduced amount. These ranges are indexed annually to prevent bracket creep and to allow more taxpayers to take advantage of Roth savings vehicles.

The Saver's Credit income limits, designed to encourage low-to-moderate income taxpayers to save for retirement, are also adjusted upward. This credit, governed by Section 25B, provides a nonrefundable tax credit for eligible taxpayers contributing to a qualified retirement plan or IRA. The specific income thresholds vary based on filing status, with corresponding credit percentages for qualified retirement savings contributions. The increase in these income limits allows more individuals to qualify for this valuable credit.

A particularly significant adjustment pertains to the Roth catch-up wage threshold, as stipulated in Section 414(v)(7)(A) and implemented through Section 603 of the SECURE 2.0 Act. This provision mandates that high-income earners must make catch-up contributions to their retirement plans on a Roth (after-tax) basis. Originally set at $145,000, the threshold is indexed for inflation and rises to $150,000 for the 2026 tax year, based on 2025 wages.

The implications of this threshold are far-reaching. For high-earning employees (those earning above $150,000 in the prior year), all catch-up contributions must be designated as Roth contributions. This means the contributions are made after-tax, but the earnings and distributions are tax-free in retirement. This change was initially slated to take effect in 2024, but Notice 2023-62 provided a two-year administrative transition period, delaying enforcement until January 1, 2026, to allow plan administrators to update their systems.

SIMPLE (Savings Incentive Match Plan for Employees) plan limits are also subject to inflation adjustments. SIMPLE plans, designed for small businesses, offer a simplified way for employers and employees to contribute to retirement savings. While specific SIMPLE plan limit changes are not detailed in the provided text, practitioners should expect adjustments to both the employee deferral limit and the employer matching or nonelective contribution limits, reflecting the overall cost of living increases. These changes allow small businesses to offer more competitive retirement benefits to their employees.

Implications & Practitioner Takeaways

Following the adjustments to various retirement plan limits, plan administrators face immediate action items. Given the changes to defined contribution plans under Section 415(c), which limits "annual additions" to the lesser of $72,000 or 100% of compensation, it is imperative to update payroll systems to reflect the increased 401(k) elective deferral limit of $24,500 for 2026. This $1,000 increase compared to prior years will permit employees to save more for retirement on a pre-tax basis.

Furthermore, practitioners must ensure systems correctly identify and process catch-up contributions for those aged 50 and over. Recall that the SECURE 2.0 Act, specifically Section 603, mandated that high earners make catch-up contributions on a Roth (after-tax) basis beginning in 2026. With the threshold for "high earners" now indexed to $150,000, plan administrators must identify employees whose 2025 FICA wages exceeded this amount and ensure their catch-up contributions are directed to Roth accounts. This is especially critical because if a plan does not offer a Roth option, these high earners will be prohibited from making catch-up contributions altogether. This necessitates a review of plan documents and communication strategies to inform affected employees of the changes. While the "Super Catch-up" for those aged 60-63 remains at $11,250, its existence alongside the Roth mandate adds complexity to plan administration.

For shareholders of Domestic International Sales Corporations (DISCs) affected by Section 995(f), Revenue Ruling 2025-23 dictates application of the 4.08% base period T-bill rate to their DISC-related deferred tax liability. Tax professionals must incorporate this rate when calculating the interest charge due on deferred DISC income, using the provided compounding factors for accuracy.

All adjustments and guidance discussed herein are effective for the tax year beginning January 1, 2026.