The Internal Revenue Service has announced its cost-of-living adjustments for the 2027 tax year.
About the IRS 401(k) Contibution Limit Update:
Next year, workers will be able to contribute even more to their 401(k)s. The IRS will increase the 401(k) contribution limit to $25,500 in 2027. That’s up $1,000 from the 2026 limit. This new limit also applies to 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan.
Meanwhile, the IRS will keep the current Individual Retirement Account (IRA) contribution limit for another year. In 2027, the limit for those under 50 years old will be $7,500, while the catch‑up contribution limit of $1,100 will allow those 50 years old or older to contribute up to $8, 600 in total. The annual IRA contribution limit was most recently increased in 2026, climbing $500 from the previous $7,000 limit set in 2024 (and lasting through the 2025 tax year).
Although the IRA contribution limit is staying put, the income phase-out range for Roth IRAs is being adjusted upwards. This range for single filers will be between $158,000 and $173,000 in 2027, compared to $153,000 and $168,000 in 2026. Similarly, the phase-out range for married couples filing jointly will increase from the current $242,000 and $252,000 range to $250,000 and $260,000 next year. These limits are based on Modified Adjusted Gross Income (MAGI).
Lastly, the income limit for the Saver’s Credit will be rising, with the top limit increasing to $41,500 for singles (up from $40,250 in 2026) and $83,000 for married couples filing jointly (versus $80,500 this year). However, starting in 2027, this credit will only be available to contributions to ABLE accounts. Contributions to other types of retirement accounts such as IRAs and 401(k) plans will be eligible for the new Saver’s Match. With that program, taxpayers can get a match of up to $1,000 per person. Single filers with MAGIs of up to $20,500 can claim a 50% match, with a phase-out range between $20,501 and $35,499. For married couples filing jointly, the 50% match MAGI limit is $41,000, phasing out up until $70,999.
My Thoughts:
I won’t pretend to know all of the calculations that go into figuring out these yearly adjustments, but it is interesting that 401(k)s would be increasing their limit while IRAs aren’t. Regardless, it may behoove taxpayers to contribute as much as they can to their eligible retirement accounts. But if that’s not possible, those with eligible incomes may want to take a closer look at the Saver’s Match launching for the 2027 tax year, as this may help them boost their retirement savings, which can then compound over time.
