401(k) contribution limit hits $25,500 for 2027

The Internal Revenue Service raised the maximum employee deferral for 401(k) plans to $25,500 for the 2027 tax year, a $1,000 increase from the 2026 limit. The agency issued the update on Thursday, applying the new cap to 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan. This adjustment tracks with the inflation adjustments the IRS released one week prior, which covered federal income tax brackets and capital gains rates.

Older savers face higher limits as well. Workers aged 50 and older can contribute an additional $8,500, up from $8,000 in 2026. Those between the ages of 60 and 63 have a separate option to add $11,750, a figure driven by the Secure 2.0 legislation. This amount is $500 higher than the 2026 threshold. These catch-up contributions are additive to the base $25,500 limit, meaning the total potential deferral for eligible older workers increases significantly. The IRS kept the individual retirement account limit steady at $7,500, with a $1,100 catch-up for those over 50.

Participation data suggests many employees are not reaching these new ceilings. Vanguard’s 2026 How America Saves report analyzed nearly 5 million participants across more than 1,300 qualified plans. It found that only 14% of 401(k) participants maxed out their contributions in 2025. The average combined savings rate, including employer deposits, was 12.1%. Vanguard recommends saving between 12% and 15% of pay annually, but the report noted that only one-quarter of participants deferred more than 10% of their earnings.

Sean Michael Pearson, a certified financial planner with Ameriprise Financial Services in Conshohocken, Pennsylvania, advised workers to prioritize employer matches before chasing higher limits. A Fidelity analysis of 27,300 corporate plans found that roughly 19% of employees were not deferring enough to receive their company's full matching contribution in the second quarter of 2026. Pearson stated that consistently increasing the savings rate is the most important habit for long-term financial health.

Experts recommend that individuals planning to maximize their 2027 contributions adjust their savings rates in December. This timing ensures the change is active by the first paycheck of January, as updates can take one or two pay periods to process. Pearson explained that bumping contributions by 1% annually may have a minimal impact on the paycheck, but the long-term effect can be substantial.

Industry trends show that automatic escalation is becoming common. A yearly survey by the Plan Sponsor Council of America included 753 plans and found that about 27% of 401(k) plans implemented automatic increases to employee deferrals. The survey revealed that 69% of these plans boosted deferrals by 1% per year.