IRS Publication 7335 – IRS Forms, Instructions, Pubs 2026 – If you sponsor, administer, or advise on a 401(k) plan, understanding the qualification rules under Internal Revenue Code (IRC) Section 401(k) is essential for tax-favored status, avoiding penalties, and passing IRS scrutiny. IRS Publication 7335 (Rev. 6-2021) — officially titled Employee Benefit Plans Explanation No. 12 Section 401(k) Requirements — serves as the authoritative IRS resource for these rules.
Download the free PDF directly from the IRS: https://www.irs.gov/pub/irs-pdf/p7335.pdf.
Although revised in June 2021 for the 2020 Required Amendment List (per Notice 2020-83), the IRS continues to reference Publication 7335 extensively in 2025–2026 guidance on safe harbor plans, excess deferrals, forfeitures as QNECs/QMACs, and mid-year changes. Plan sponsors use it alongside the IRS retirement plan document checklists to self-audit or prepare determination letter applications.
This article breaks down the publication’s key explanations in plain language, highlights practical requirements, and notes 2026 updates (such as contribution limits). It draws exclusively from the official PDF, IRS.gov snapshots, and related regulations.
What Is IRS Publication 7335 and Who Needs It?
Publication 7335 explains how to qualify a cash or deferred arrangement (CODA) — the core feature of a 401(k) plan — under IRC Section 401(k). It includes:
- Form 9002 (Worksheet 12): A yes/no checklist to spot qualification issues.
- Form 9417 (Deficiency Checksheet 12): Sample language to fix problems.
A “Yes” on the worksheet generally means compliance; a “No” flags a potential disqualification risk. The publication covers profit-sharing, stock bonus, and certain pre-ERISA money purchase plans that include CODAs. It does not apply to governmental or most tax-exempt plans established after specific cutoff dates.
Key takeaway: Section 401(k) is the exclusive way to offer pre-tax elective deferrals in a qualified plan. Roth elective contributions (post-tax) follow parallel rules but require separate accounting.
Core Requirements for a Qualified 401(k) CODA
1. Contributions and Elective Deferrals
- Employees must make a cash-or-deferred election before compensation is currently available.
- One-time irrevocable elections at initial eligibility do not count as CODA elections.
- Automatic enrollment (including Roth + pre-tax combinations) is permitted.
- 2026 Limits (adjusted annually for inflation):
- Elective deferral limit: $24,500
- Catch-up contributions (age 50+): $8,000 (or $11,250 for ages 60–63 under SECURE 2.0 super catch-up)
- Overall annual additions limit (employee + employer): $72,000 (or higher with catch-up)
- Excess deferrals (over 402(g)) must generally be distributed by April 15 of the following year to avoid double taxation.
2. Eligibility, Coverage, and Participation
- Maximum requirements: Age 21 and 1 year of service.
- Plans must satisfy IRC Section 410(b) coverage tests (ratio percentage, percentage, or average benefits).
- All employees eligible to defer (including those at 415 limits) are treated as “benefiting” for coverage.
3. Immediate 100% Vesting
- All elective deferrals (pre-tax and Roth) are nonforfeitable when contributed — no vesting schedule allowed.
4. Nondiscrimination: The ADP Test and Safe Harbors
The Actual Deferral Percentage (ADP) test compares average deferral rates of highly compensated employees (HCEs) vs. nonhighly compensated employees (NHCEs). Plans pass if the HCE ADP does not exceed the greater of:
- 125% of the NHCE ADP, or
- The lesser of 200% of the NHCE ADP or NHCE ADP + 2 percentage points.
Safe Harbor 401(k) options (deemed to satisfy ADP/ACP):
- Basic matching: 100% on first 3% of compensation + 50% on next 2–5%.
- Enhanced matching: At least as generous as basic, with no higher rate on higher deferrals.
- Nonelective: At least 3% to all eligible NHCEs (notice requirement eliminated for nonelective safe harbors after 2019 under SECURE Act).
- Contributions must be nonforfeitable and subject to same distribution restrictions as elective deferrals.
- Annual notice required (30–90 days before plan year), with supplemental notices for mid-year changes (per Notice 2016-16).
Qualified Automatic Contribution Arrangement (QACA):
- Automatic enrollment with escalating default percentages (minimum 3% rising to 6%, or flat 6–10%/15% after 2019).
- Required employer match or nonelective (at least as generous as safe harbor).
- 2-year vesting maximum on employer contributions.
- Satisfies ADP, ACP, and top-heavy minimums.
Eligible Automatic Contribution Arrangement (EACA):
- Allows “permissible withdrawals” of default contributions within 90 days (no 10% early withdrawal penalty).
QNECs and QMACs (Qualified Nonelective/Qualified Matching Contributions):
- Used to correct ADP failures or as safe harbor contributions.
- Must be 100% vested and subject to elective distribution restrictions.
- 2018 final regulations expanded when employer contributions can qualify as QNECs/QMACs (nonforfeitable when allocated).
5. Distributions and Withdrawals
Permissible events include:
- Separation from service, death, disability, or plan termination.
- Age 59½.
- Hardship (safe harbor expenses: medical, home purchase, tuition, eviction/foreclosure prevention, burial, certain disasters).
- Qualified reservist or uniformed services distributions.
Hardship withdrawals require substantiation or participant representation of need and insufficient other resources.
6. Highly Compensated Employees (HCEs) and Compensation
- HCE definition: 5% owner or compensation > $155,000 (2026 indexed threshold) in prior year (top-paid group election available).
- Compensation generally follows IRC Section 415(c)(3) safe harbor definition (with plan-specific consistent exclusions).
7. SIMPLE 401(k) Plans
- For small employers (≤100 employees earning ≥$5,000).
- No other plans allowed (with limited exceptions).
- Mandatory employer match (up to 3%) or nonelective (2%).
- Higher elective limits than standard SIMPLE IRA.
How to Use Worksheet 12 (Form 9002) for Self-Audit?
The worksheet walks through every major requirement with line-by-line questions on:
- Applicability of CODA
- Contributions and elections
- Coverage and eligibility
- Vesting
- ADP/safe harbor compliance
- QNECs/QMACs
- Distributions
- Notice requirements
- QACA/EACA specifics
Any “No” answer requires explanation and correction before IRS submission or to maintain qualification.
Why Publication 7335 Remains Critical in 2026?
Despite its 2021 revision date, the IRS still lists it as the primary tool for Section 401(k) document review on its official checklists page. Core statutory and regulatory requirements (ADP testing mechanics, safe harbor designs, distribution restrictions) have not changed. Dollar limits and certain administrative rules (e.g., catch-up Roth mandates for high earners starting 2026) are updated annually via COLA notices and SECURE 2.0 guidance.
Related IRS Resources:
- Publication 7334: Employee and Matching Contributions
- IRS Checklists for Retirement Plan Documents
- Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits
- Issue Snapshots on safe harbor notices, forfeitures as QNECs, and excess deferrals
Final Advice for Plan Sponsors
Review your plan document against Publication 7335 annually, especially before restatements or amendments. Safe harbor designs and automatic enrollment features can simplify compliance dramatically. Always work with a qualified third-party administrator (TPA), ERISA counsel, or enrolled actuary for plan-specific application — Publication 7335 is a powerful tool, not a substitute for professional advice.
Download IRS Publication 7335 today and use Worksheet 12 as your compliance roadmap. Staying current with this guidance helps protect your plan’s tax-qualified status and maximize retirement savings for employees.
Last updated for 2026 contribution limits and IRS references as of February 2026. Rules are subject to future guidance; consult IRS.gov or a retirement plan professional for the latest.