Americans will be able to save more in their tax-deferred employer-sponsored 401(k) plans next year, but not in their individual retirement accounts, according to the IRS' new annual 401(k) savings limits.
Individuals can contribute in 2027 as much as $25,500, up from $24,500 this year, to their employer-sponsored retirement fund, the IRS said. Limits for those who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan will have the same increase, the agency said. The increase was made to account for inflation.
However, the limit on annual contributions to an IRA will remain $7,500, IRS said.
"This increase in the pension limitations will help American families keep more of their hard-earned income,”
said IRS chief executive Frank Bisignano. “With the new adjustment in place now, the IRS is giving taxpayers and employers the information needed to make retirement planning decisions for the year ahead.”
Catch-up contributions
American workers aged 50 and older can contribute even more with a catch-up contribution. The catch-up contribution maximum increases for most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan to $8,500 from $8,000 for 2026, IRS said. That means they could conceivably save $34,000.
Workers ages 60 to 63 are allowed a super catch-up contribution next year of $11,750, up from $11,250 in 2026. That pushes up their maximum 401(k) contribution to $37,250 next year.
Again, though, traditional IRAs are unchanged, with the catch-up static at $1,100.
What about Roth savers?
Individuals using Roth IRAs, which are funded with after-tax money, are phased out when their income reaches $158,000, up from $153,000 in 2026, IRS said. Once income hits $173,000, up from $168,000, they can't save in a Roth IRA.
For married couples filing jointly, the income phase-out range is increased to between $250,000 and $260,000, from between $242,000 and $252,000 for 2026, the IRS said.
How meaningful are these increases to typical Americans?
The increases mostly benefit Americans who can afford to save this much each year, but there aren't many of them, studies show.
Last year, only 14% of those with Vanguard 401(k) accounts saved the maximum amount, according to the fund company's annual How America Saves report. Those who did tended to be older and have larger incomes, it said.
But even if most Americans can't max out their retirement funds, the most important thing is to keep saving however you can, financial advisers said.
Many companies will match an employee's 401(k) contribution up to a certain point, and advisers urge Americans to save at least enough to receive the match, which they call "free money."
401(k) contributions also save you money on taxes, advisers said. Since contributions are taken from your paycheck before taxes, your taxable income drops. You pay taxes only on withdrawals, so your money grows tax-free while it’s in your 401(k).
IRAs are opened by individuals through a brokerage or bank. Depending on your income and filing status, all or part of your contributions may be fully or partially deductible, making this investment tax-advantaged too. Only withdrawals are taxed.
A Roth account works differently. A Roth retirement account pays taxes on the contributions when they are made and never pays taxes again. These are generally worthwhile when considering future tax payments, advisers said.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: IRS boosts 401(k) limit to $25,500 for 2027. Here's what changes
