2027 401(k) limits: a client update plan for firms

What are the 2027 401(k) limits?

The IRS released the 2027 figures on November 12, 2026, in news release IR-2026-136 and Notice 2026-66. The headline number is the employee deferral cap for 401(k), 403(b), governmental 457 and Thrift Savings Plan accounts, which goes from $24,500 to $25,500.

Two catch-up figures also changed. The standard catch-up for people aged 50 and over moved from $8,000 to $8,500, so a 55-year-old can defer up to $34,000. The higher catch-up for those who turn 60, 61, 62 or 63 during 2027 is now $11,750, up from $11,250.

A catch-up contribution is an extra deferral, on top of the normal cap, that the tax code lets older employees make. It does not count toward the $75,000 overall limit on additions to a defined contribution account, which also rose from $72,000.

Which 2027 retirement figures did not change?

Several numbers held still, and clients will ask about them because the headlines lead with increases. The IRA contribution limit stays at $7,500, and the IRA catch-up for savers aged 50 and over stays at $1,100.

The SIMPLE side is mixed. Salary deferrals into a SIMPLE IRA or SIMPLE 401(k) rise from $17,000 to $17,500, and the higher limit some smaller employers can use rises to $19,100. The SIMPLE catch-up stays at $4,000 for most plans, $3,850 for the plans on the higher deferral limit, and $5,250 for ages 60 to 63.

The IRA income ranges did move. A single filer covered by a workplace plan now phases out of a deductible traditional IRA between $83,000 and $93,000 of modified AGI, and the Roth IRA range for single and head of household filers is $158,000 to $173,000. Joint filers phase out of Roth eligibility between $250,000 and $260,000.

Who has to make catch-up contributions as Roth in 2027?

From 2027, employees whose prior-year FICA wages from the plan sponsor exceeded the threshold must make any catch-up as Roth money. Notice 2026-66 sets that threshold at $155,000, tested against 2026 Box 3 wages. If the plan has no Roth option, those employees cannot make catch-ups at all.

This comes from SECURE 2.0. The final regulations apply to taxable years beginning after December 31, 2026, with later dates for some governmental and collectively bargained plans. Many plans have already applied the rule in 2026 under a good-faith reading, so check what each client's provider actually did this year.

The test looks only at wages paid by the employer that sponsors the plan. Someone earning $120,000 from each of two unrelated employers is under the line at both. A sole proprietor has no Box 3 wages from their own business, so the Roth requirement generally does not reach them, although plan documents can be stricter.

Which clients need to hear about the 2027 limits?

Do not send one bulletin to the whole client list. Most people with a workplace plan just need their payroll election raised, and their employer's HR portal will prompt them. Your time is better spent on the groups where a missed change costs real money or causes a compliance problem.

The table below is the triage we would run on a mixed tax, bookkeeping and payroll book. Pull the date of birth, 2026 W-2 wages and plan type from your records, then sort.

How do you update payroll for the 2027 limits?

Most payroll platforms load the new IRS limits automatically, but they do not know which employees turn 60 in 2027 or who earned more than $155,000 last year. That data sits with the employer, and for many small businesses the employer is relying on you.

1. Confirm the platform's 2027 tables. Check that the deferral cap reads $25,500 and the age 50 catch-up reads $8,500 before any January payroll is processed.
2. Tag birth years. Anyone born between 1964 and 1967 qualifies for the higher $11,750 catch-up in 2027. Someone born in 1963 turns 64 and drops back to $8,500.
3. Run the Roth wage report. List every employee whose 2026 Box 3 wages exceeded $155,000. Their catch-up deferrals need to be coded as Roth from the first 2027 paycheck.
4. Check the plan document. Ask the recordkeeper whether the plan allows the age 60 to 63 catch-up and offers Roth deferrals. Both are optional for the employer.
5. Tell the employee. Deferral elections are percentages or dollar amounts the employee chooses. A higher limit does nothing until they change their election.

If you also prepare quarterly returns for these clients, add this check to the same January calendar that drives your Form 941 payroll dates, so it happens in one pass.

Worked example: an owner turning 61 in 2027

Take an illustrative client, Dana, who owns an S corporation design studio and was born in 1966. She pays herself a W-2 salary of $140,000 and sponsors a solo 401(k) with a Roth option. Her 2026 Box 3 wages were also $140,000.

For 2027, Dana can defer $25,500 as an employee. Because she turns 61, she can add the $11,750 catch-up, bringing her employee contributions to $37,250. The company can add a profit-sharing contribution of up to 25% of her W-2 pay, which is $35,000.

Now check the overall cap. Deferrals plus the employer contribution total $60,500, which sits under the $75,000 limit, and the catch-up is counted outside that limit. With the catch-up added, her total for the year comes to $72,250. Because her 2026 FICA wages were under $155,000, her catch-up can go in pre-tax or Roth, whichever she prefers.

Change one fact. If Dana's 2026 salary had been $170,000, her $11,750 catch-up in 2027 would have to be Roth. If her plan had no Roth feature, she would lose the catch-up entirely until the plan was amended. That is the conversation to have in December, not in April.

What should the client message say?

Keep it short and specific to the reader. A client who is 45 does not need a paragraph on the age 60 to 63 catch-up. Three tailored messages cover most books:

• Employers you run payroll for: the new caps, the list of employees you have flagged for Roth catch-up or the higher catch-up, and one question about whether the plan allows both.
• Individuals born 1964 to 1967: the $11,750 figure, a note that their payroll election must be raised to use it, and a suggested per-paycheck amount.
• Self-employed plan owners: the new deferral and $75,000 overall limits, and an offer to recalculate the split once 2026 profit is known.

Give the per-paycheck number where you can. On 26 biweekly pay periods, a full $25,500 deferral is about $980.77 each paycheck, and $37,250 for a 60 to 63 year old is about $1,432.69. People act on a number they can type into a form. Pair the message with your 2027 tax brackets update if you are already writing to the same clients.

What mistakes come up most with new limits?

The same handful of errors appear every January. Watch for these:

• Assuming age is checked on the date of the paycheck. Eligibility for catch-ups is based on the age a person reaches by the end of the calendar year, so a client turning 50 in November can catch up from January.
• Using total wages for the Roth test. The test uses Box 3 FICA wages from the sponsoring employer, not Box 1 and not household income.
• Overlooking a second plan. The $25,500 deferral cap is per person across all employers. A client who changes jobs mid-year can over-defer without either employer noticing. The IRS catch-up guidance sets out how the limits combine.
• Forgetting SIMPLE catch-ups did not rise. Copying the 401(k) catch-up into a SIMPLE payroll setup over-defers by $4,500.
• Quoting projections. Some sites published estimates earlier in the year that differ from the final figures. Use Notice 2026-66 only.

Excess deferrals are fixable if caught by April 15 of the following year, but they are a nuisance for the employee and the plan. A January check is cheaper.

How Zaquil handles the 2027 401(k) limit update

The work above is mostly data and follow-up: sort clients, send the right message, collect answers, then make sure payroll changes before the first pay run. In Zaquil for accounting and tax practices, that becomes a short, repeatable job rather than a spreadsheet.

Start with a job template called "2027 retirement limits" with a checklist: confirm payroll tables, tag birth years, run the Roth wage list, confirm plan features, notify employees. Create it as a job for each payroll client and track progress on the kanban board, so you can see which employers are still waiting on a recordkeeper.

The employer gets a questionnaire in the client portal asking whether the plan offers Roth deferrals and the age 60 to 63 catch-up, with space to upload the plan's summary. Their answer lands in the client record, not in someone's inbox.

An automation sends a reminder if the questionnaire is still open after five days, and a second one before the first January pay run. Individual clients born between 1964 and 1967 get a short message from the unified inbox by email or SMS, and replies come back to the same thread the whole team can see.

If you charge for the plan review, attach an invoice to the job so it is billed when the job closes. You can try the whole workflow on a 14-day free trial with no credit card. Plans start at $19 a month; see Zaquil pricing.