What Does a Plan Year Maximum Mean?
Understand "plan year maximum" to navigate the crucial limits defining your financial and benefit plan periods.
A “plan year maximum” represents a financial boundary within various benefit and financial plans. This concept combines a specific time frame, the “plan year,” with a financial limit, or “maximum,” defining how benefits, contributions, or costs are structured. Understanding this term is important for individuals managing their healthcare, retirement savings, and other financial arrangements.
What is a Plan Year?
A plan year designates a specific 12-month period chosen by a plan administrator for managing and accounting for benefits. This period does not always align with the standard calendar year (January 1st to December 31st). For instance, a plan year might begin on July 1st and conclude on June 30th.
The Employee Retirement Income Security Act (ERISA) specifies that a plan year is the 12-month period designated in the plan document. Understanding the specific start and end dates of a plan year is important because many benefits and financial limits reset or are applied based on this defined cycle. Knowing this period allows participants to effectively track their benefit usage.
What is a Maximum?
Within financial and benefit plans, a “maximum” refers to a predetermined cap or limit on amounts related to contributions, benefits, or out-of-pocket expenses. These limits are set to manage plan sustainability, ensure compliance with regulations, and protect individuals from excessive costs.
Out-of-pocket maximums, for example, represent the highest amount a plan participant will pay for covered healthcare services within a plan year before the plan begins to cover 100% of eligible costs. Contribution maximums, conversely, cap the amount an individual or employer can contribute to specific accounts, such as retirement plans or health savings accounts, often to comply with tax regulations. Coverage maximums limit the total amount a plan will pay for certain benefits or services.
How Plan Year Maximums Apply
The interaction between a plan year and a maximum dictates when financial limits reset and how benefits are applied. For healthcare plans, deductibles and out-of-pocket maximums typically reset at the beginning of each new plan year. For example, for 2025, the out-of-pocket maximum for an individual health plan is $9,200, and for family coverage it is $18,400. Once these amounts are met, the plan covers 100% of covered, in-network services for the remainder of that plan year.
Retirement plans, such as 401(k)s and Individual Retirement Accounts (IRAs), generally tie their contribution limits to the calendar year. For 2025, the employee contribution limit for a 401(k) is $23,500, with an additional $7,500 catch-up contribution for those age 50 or older. The total combined employee and employer contribution limit for a 401(k) in 2025 is $70,000. Similarly, the IRA contribution limit for 2025 is $7,000, with an extra $1,000 catch-up contribution for individuals age 50 or older. While these are calendar-year limits, employer matching contributions or vesting schedules within a 401(k) plan may align with the employer’s specific plan year.
Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) also have annual contribution limits, which typically reset each year. For 2025, the FSA contribution limit is $3,300, and employers may allow a carryover of up to $660 of unused funds into the next year. HSA contribution limits for 2025 are $4,300 for self-only coverage and $8,550 for family coverage, plus an additional $1,000 catch-up contribution for those age 55 and older. Understanding these annual resets allows individuals to maximize their contributions and utilize benefits before the next plan year begins.