The IRS has raised the 2027 elective deferral limit for 401(k) plans to $25,500, an increase of $1,000 from 2026. This change, along with adjustments to catch-up contributions, creates new opportunities for tax-deferred retirement savings.
New Limits and Catch-Up Thresholds
The $25,500 limit applies to 401(k), 403(b), governmental 457 plans, and the federal Thrift Savings Plan. The standard catch-up contribution for workers aged 50 and older rises to $8,500, allowing a total contribution of $34,000. A higher catch-up under SECURE 2.0 for those aged 60-63 reaches $11,750, for a total of $37,250. These catch-up options cannot be combined.
IRA contribution limits remain unchanged at $7,500, with a $1,100 catch-up for individuals 50 and older.
Tax Advantages: Traditional vs. Roth
Traditional 401(k) contributions reduce current taxable income, while withdrawals are taxed as ordinary income. Roth 401(k) contributions are made with post-tax dollars, and qualified withdrawals are tax-free. The IRS mandates that employees with 2026 FICA wages exceeding $155,000 must make their 2027 catch-up contributions as Roth.
At the end of the first quarter of 2026, 401(k) plans held an estimated $9.9 trillion in assets.
Action Steps for Savers
Higher limits do not automatically update employee deferral elections. Workers must review and update their payroll contributions for 2027. IRS CEO Frank Bisignano stated the increase helps families keep more income and aids planning decisions.
Sources
- 401(k)
- IRS Increases 401(k) Contribution Limit to $25,500 for 2027
- IRS ups 401(k) limits to $25,500 for next year
- IRS Raises 2027 Retirement Contribution Limits for 401(k) – Resourceful Finance Pro
- IRS raises 401(k) contribution limit for 2027, but not the IRA limit
- IRS boosts 401(k) limit to $25,500 for 2027. Here's what changes – AOL
Photo: Brooke Cagle / Unsplash (Unsplash License)
