IRS lifts 2027 401(k) cap to $25,500 — payroll has homework

The IRS will raise the 2027 employee contribution limit for 401(k), 403(b) and 457(b) plans to $25,500, up from $24,500 in 2026. For benefits and payroll teams, that single figure sets off a chain of plan-administration and communication tasks well before the new year begins.

The catch-up tiers — the extra deferral amounts permitted to older workers — move as well, and not by identical amounts. Employees age 50 and older may contribute an additional $8,500 in 2027, bringing their total to $34,000. Employees who turn 60, 61, 62 or 63 during 2027 get a larger allowance: an extra $11,750, for a total of $37,250.

The structure mirrors the "super catch-up" Congress built into SECURE 2.0 (the 2022 retirement-savings law). As before, the rules carry fine print that plan sponsors ignore at their peril.

What does the ruling change for plan design?

Three operational points stand out.

• No stacking. The enhanced catch-up for workers aged 60-63 replaces the standard age-50 catch-up, not supplements it. An employee cannot combine the $8,500 and $11,750 amounts.
• Plan permission required. Employees can make catch-up contributions only if the plan permits them. Sponsors that have not adopted the enhanced 60-63 tier must decide whether to amend.
• Elections do not move on their own. Higher limits do not automatically change employees' deferral elections. Workers should review their current elections and the plan's procedures to decide whether to contribute more in 2027 — which puts the burden of timely communication on employers.

Where does the Roth threshold land?

Payroll departments face the sharpest edge. Employees whose 2026 FICA wages (wages subject to Social Security and Medicare tax) from the employer sponsoring the plan exceed $155,000 generally must make their 2027 catch-up contributions as Roth contributions — after-tax, with tax-free qualified withdrawals.

That is a $5,000 increase from the prior trigger. For 2026 catch-up contributions, the threshold was $150,000, based on 2025 wages. In practical terms, payroll must track prior-year wage data to classify current-year catch-ups correctly, a look-back mechanism that has already tripped up more than one administrator since the mandate took effect.

What should employers do now?

The sequence is straightforward, if unglamorous.

• Confirm the plan document permits catch-up contributions and, where relevant, the enhanced 60-63 tier.
• Verify payroll systems apply the new $25,500 limit and both catch-up ceilings from January 2027.
• Build the $155,000 Roth look-back test into 2027 processing, using 2026 FICA wage records.
• Notify employees that deferral elections will not adjust automatically, and give them a window to revise before the plan year starts.

The IRS published the figures in its official announcement; the numbers apply plan-year-wide to 401(k), 403(b) and most 457(b) arrangements.

The limits rose. Nothing else about the work did — payroll and benefits teams still have to make the numbers real.