What is not included in annual additions?

The correct response identifies that health benefits contributions are not considered annual additions in the context of qualified retirement plans, such as 401(k) plans. Annual additions generally encompass contributions made to the retirement plan that increase the participant's account balance. This includes employer contributions such as matching contributions and profit-sharing, as well as employee contributions, including pre-tax and after-tax contributions.

Health benefits contributions, however, are related to healthcare expenses and are not intended for retirement savings. They do not increase a participant's retirement account balance and are not classified under the annual additions limit as defined by the Internal Revenue Code. This distinction is crucial for understanding how retirement contribution limits are calculated and ensures that health-related contributions are evaluated separately from retirement plan contributions.