Key Takeaways
- The 401(k) employee contribution limit increases to $25,500 in 2027, with higher catch-up limits for employees age 50 and older.
- The combined employee and employer contribution limit rises to $75,000, potentially creating additional tax deduction opportunities for business owners.
- IRA contribution limits remain unchanged for 2027.
- Higher earners subject to the Roth catch-up requirement must make eligible catch-up contributions with after-tax dollars.
- Reviewing retirement contributions, tax deductions, and payroll requirements before year-end can help individuals and businesses prepare for 2027.
The IRS has announced new retirement contribution limits for 2027, creating additional opportunities for individuals and business owners to manage their tax liabilities while saving for retirement.
Higher contribution limits can affect taxable income, employer deductions, and payroll decisions. But taking advantage of them requires understanding which contributions qualify for tax deductions, how the rules apply to your situation, and whether changes make sense for your business. Here’s what you need to know as you prepare for 2027.
How Much Can You Contribute in 2027?
The IRS has increased several retirement plan limits for the coming year. Here’s how the new numbers compare with 2026:
| Contribution limit (Excludes eligible catch-up contributions. Actual contributions depend on plan provisions and applicable rules.) | 2026 | 2027 |
| 401(k) employee contributions | $24,500 | $25,500 |
| 401(k) catch-up contributions, age 50+ | $8,000 | $8,500 |
| Special 401(k) catch-up, ages 60–63 | $11,250 | $11,750 |
| Combined employee and employer defined contribution plan limit* | $72,000 | $75,000 |
| IRA contributions | $7,500 | $7,500 |
| IRA catch-up contributions, age 50+ | $1,100 | $1,100 |
For someone under age 50, the new 401(k) limit means an additional $1,000 in potential retirement savings next year. Workers age 50 and older can contribute up to $34,000, including catch-up contributions. Those ages 60 through 63 have an even higher limit of $37,250.
The IRA limits remain unchanged, so individuals saving outside an employer-sponsored plan won’t see an increase in their annual contribution allowance.
What the New Limits Mean for Business Owners
Business owners who sponsor retirement plans have additional considerations beyond their personal contributions. For 2027, the combined limit for employee and employer contributions to a defined contribution plan increases to $75,000, excluding eligible catch-up contributions. Depending on the plan, this may provide more room for employer matching or profit-sharing contributions.
Employer contributions may be deductible business expenses, potentially reducing taxable income. However, contribution amounts, deduction limits, and timing requirements vary by plan and business structure.
Before increasing contributions, business owners should weigh potential tax benefits against cash flow, payroll costs, and other business expenses. Coordinating with your retirement plan administrator and us can help ensure contributions are handled correctly.
A Change to Catch-Up Contributions for Higher Earners
Some employees 50 or older will also need to pay attention to how they make catch-up contributions. Under the SECURE 2.0 Act, employees whose wages from their employer exceeded a specified amount in the previous year generally must make their catch-up contributions on a Roth basis rather than a traditional pre-tax basis.
For 2027, the threshold is $155,000 in 2026 wages. Roth contributions are made with after-tax dollars, so they don’t reduce your taxable income in the year you contribute. However, qualifying withdrawals in retirement are tax-free.
If you’re affected by this requirement, you may need to adjust your 2027 tax planning. Employers should also confirm that their retirement plans and payroll systems can accommodate the Roth catch-up rules.
Tax and Payroll Considerations for 2027
As you prepare for the new year, there are several areas worth reviewing:
- Tax deductions: Determine whether increasing traditional retirement contributions could reduce your taxable income and how those contributions fit into your overall tax strategy.
- Payroll adjustments: Employers should confirm that their payroll systems reflect the new limits and accommodate Roth catch-up requirements for eligible higher-paid employees.
- Business contributions: If your company offers a retirement plan, review employer contribution options, potential deductions, and their impact on cash flow.
Address these decisions before the year begins, particularly if changes to payroll elections or plan administration are needed.
Plan Ahead for the Tax Implications
The higher retirement contribution limits for 2027 create opportunities to reduce taxable income and increase retirement savings, but the tax benefits depend on the type of contributions you make and your individual or business circumstances. At Bailey Scarano, we help individuals and businesses understand the tax implications of retirement contributions and incorporate those decisions into their broader tax and business planning. Contact us to discuss how the 2027 changes may affect your taxes.