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By Rich Percival
Associate News Editor
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Americans will be able to put an extra $1,000 under the standard employee limit into their 401(k) accounts next year, while older workers will qualify for higher limits as they approach retirement.
The Internal Revenue Service (IRS) announced on November 12 that the standard employee contribution ceiling will increase to $25,500 in 2027, from $24,500 this year.
The increase also applies to 403(b) plans, governmental 457 plans and the federal government’s Thrift Savings Plan.
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For someone already saving the maximum, using the additional allowance means contributing another $83.33 a month, or approximately $38.46 per paycheck if paid every two weeks. Reaching the full ceiling would require saving $2,125 monthly.
Workers saving smaller amounts could benefit from another change: a federal matching program beginning with the 2027 tax year.
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Older Workers Can Save More
Most eligible workers aged 50 and older will be allowed an additional $8,500 in catch-up contributions, bringing their potential total to $34,000.
Those turning 60, 61, 62 or 63 during 2027 have a larger catch-up allowance of $11,750, allowing total contributions of $37,250. That replaces the ordinary catch-up amount. Workplace plans must permit catch-up contributions for employees to use them.
Higher earners face a tax consideration. Workers whose relevant wages from their plan’s sponsoring employer exceeded $155,000 in 2026 generally must make their 2027 catch-up contributions as Roth contributions.
That means paying income tax upfront, rather than receiving the current income-tax reduction associated with traditional pre-tax contributions. The requirement concerns catch-up savings, rather than automatically applying to every contribution.
Federal Match Helps Smaller Savers
Eligible low and moderate-income workers can receive up to $1,000 annually through the Saver’s Match, which matches as much as 50 percent of the first $2,000 in qualifying retirement contributions.
Eligibility and the matching rate depend on income and other requirements. Payments begin in 2028, based on contributions made for 2027, and generally go into a designated retirement account. The program replaces the Saver’s Credit for eligible retirement contributions.
Check Your Employer’s Contribution
Employer contributions are separate from the standard $25,500 employee allowance. The overall dollar ceiling on combined contributions rises to $75,000 in 2027, excluding eligible catch-up contributions. Other restrictions can apply.
Workers need not approach those ceilings to receive substantial employer support. For example, someone earning $60,000 whose employer matches contributions dollar for dollar up to 5 percent of salary could contribute $3,000 and receive another $3,000. Actual matching formulas vary.
Employees should check vesting rules before changing jobs. Their own contributions belong to them, but some employer contributions become theirs only after a specified period of service. Leaving earlier can mean forfeiting some employer-funded savings.
What About IRAs?
The IRA contribution limit remains $7,500, with an additional $1,100 allowance for people aged 50 and older.
Income thresholds for direct Roth IRA contributions are increasing. Eligibility phases out between $158,000 and $173,000 in modified adjusted gross income for single filers and heads of household, and between $250,000 and $260,000 for married couples filing jointly.
Workers can review payroll elections before January. Splitting salary deferrals between traditional and Roth accounts does not double the employee allowance, and changing employers generally does not reset it.
Contact Newsweek editors on this story: Ben Kelly and Cristina Diciu.
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