2025 Limits on Contributions to 401(k) Plans Qualified in Puerto Rico

On January 22, 2025, the Puerto Rico Treasury Department (commonly known by its Spanish name as “Hacienda”) issued Circular Letter of Internal Revenue No. 25-01 [https://hacienda.pr.gov/publicaciones/carta-circular-de-rentas-internas-num-25-01-cc-ri-25-01], establishing the annual contributions and compensation limits applicable for 2025 to 401(k) plans in operation in Puerto Rico.  Unfortunately, Hacienda did not increase vis-à-vis 2024, the maximum amounts that Puerto Rico participants can contribute to their 401(k) plan accounts through pre-tax, catch-up, or after-tax contributions.  And, because the Puerto Rico Internal Revenue Code of 2011 (“PRIRC”) does not provide for Roth contributions, Puerto Rico participants remain ineligible to make Roth contributions to their 401(k) plan accounts.

Basically, the 2025 limits are:

• Pre-tax contributions to 401(k) plans qualified only under PRIRC § 1081.01(a), commonly known as “P.R.-only qualified plans”, $15,000.
• Pre-tax contributions to 401(k) plans qualified under Section 401(a) of the United States Internal Revenue Code of 1986 (“Code”) and PRIRC § 1081.01(a), commonly known as “dual qualified plans”, $20,000. This lower limit only applies to those plan participants who are Puerto Rico residents, which generally means participants whose wages are reported to Hacienda on a local Form W-2 [https://hacienda.pr.gov/sites/default/files/documentos/comprobante_de_retencion_2024_rev._05.24_informativo.pdf], not to the IRS on a U.S. Form W-2.
• Catch-up contributions to 401(k) plans, both P.R.-only qualified and dual qualified, $1,500 (or $7,500 for Puerto Rico participants in the U.S. government’s Thrift Savings Plan). The catch-up rules of Code § 414(v) may safely be used for determining which participants are eligible for catch-up contributions.
• After-tax contributions to 401(k) plans, both P.R.-only qualified and dual qualified, 10% of the participant’s aggregate covered compensation for all years of plan participation. For ease of administration, most 401(k) plans simply provide for an after-tax limit of 10% of the participant’s covered compensation for the current year.
• Annual additions to a participant’s 401(k) plan account (i.e., the local equivalent to Code Sec. 415(c)(1)), $70,000. The relevant U.S. rules may safely be used for determining compliance with the local rules.
• Annual covered compensation for contribution allocations and nondiscrimination testing (i.e., the local equivalent to Code § 401(a)(17)), $350,000. The relevant U.S. rules may safely be used for determining compliance with the local rules.
• Compensation for highly compensated employee (HCE) classification for nondiscrimination testing (e., the local equivalent to Code § 414(q)(1)(B)), $160,000. In accordance with PRIRC § 1081.01(a)(3)(E), dual qualified 401(k) plans that pass the minimum coverage test of Code § 410(b) and the actual deferral percentage (ADP) test of Code § 401(k)(3) automatically pass the equivalent local tests, thus no separate Puerto Rico-only testing is needed.  While this may require some Hacienda filings, this “nondiscrimination reciprocity rule” also applies to safe harbor 401(k) plans.