Section 4972. Section 4972 imposes an excise tax on

employers who make nondeductible contributions to their qualified plans. The excise tax is equal to 10% of the nondeductible contributions in the plan as of the end of the employer’s tax year.

A “qualified employer plan” for purposes of this section means any plan qualified under section 401(a), any annuity plan qualified under section 403(a), and any simplified employee pension plan qualified under section 408(k) or any simple retirement account under section 408(p). The term qualified plan does not include certain governmental plans and certain plans maintained by tax-exempt organizations.

Defined contribution plans exception. In determining the amount of nondeductible contributions subject to the 10% excise tax, do not include any of the following.

For purposes of this exception, the combined plan deduction limits are first applied to contributions to the defined benefit plan and then to the defined contribution plan.

Restorative payments to a defined contribution plan are not considered nondeductible contributions if the payments are made to restore some or all of the plan’s losses due to an action (or a failure to act) that creates a

• Employer contributions to one or more defined contribution plans that are nondeductible solely because of section 404(a)(7) that do not exceed the matching contributions described in section 401(m)(4) (A).

• Contributions to a SIMPLE 401(k) or a SIMPLE IRA considered nondeductible because they are not made in connection with the employer’s trade or business. However, this provision pertaining to SIMPLEs does not apply to contributions made on behalf of the employer or the employer’s family.

8 Instructions for Form 5330 (Rev. 12-2025)

reasonable risk of liability for breach of fiduciary duty. Amounts paid in excess of the loss are not considered restorative payments.

For these purposes, multiemployer plans are not taken into consideration in applying the overall limit on deductions where there is a combination of defined benefit and defined contribution plans.

Section 4973(a) imposes a 6% excise tax on excess contributions to section 403(b)(7)(A) custodial accounts at the close of the tax year. The tax is paid by the individual account holder.

Line 1. Enter total current year contributions, less any rollover contributions described in section 403(b)(8) or 408(d)(3)(A).

Line 2. Enter the amount excludable under section 415(c) (limit on annual additions).

Tip: To determine the amount excludable for a specific year, see Pub. 571, Tax-Sheltered Annuity Plans (403(b) Plans), for that year.

The limit on annual additions under section 415(c)(1) (A) is subject to cost-of-living adjustments as described in section 415(d). The dollar limit for a calendar year, as adjusted annually, is published during the fourth quarter of the prior calendar year in the Internal Revenue Bulletin.