401(k) Contribution Limits for 2027: What Advisors and CPAs Need to Know

The limits themselves are a lookup. Publishing them here would produce a page that is wrong within a year and that someone relies on anyway.

What is durable — and what practitioners actually get wrong — is how the limits interact. In particular one distinction that explains most of the errors in this area, and one failure mode that no employer can detect.

Fill This In From the Annual Announcement

The Social Security wage base belongs on the list because it drives integrated allocation formulas and the owner-employee computations discussed below.

The Distinction That Explains Most Errors

Two limits, applied at two different levels, and conflating them is the source of the most common mistakes.

The elective deferral limit is PER PERSON. An individual may defer no more than the limit in total across all plans of all employers in a calendar year.

The annual additions limit is PER EMPLOYER — the total of elective deferrals, employer contributions, and any forfeitures allocated to the participant under that employer's plan, subject to aggregation where employers are related.

Which produces a result that surprises people and is entirely correct: an individual with two genuinely unrelated employers has two separate annual additions limits and only one deferral limit. Someone deferring the maximum at one job can still receive substantial employer contributions at the other, up to that plan's own annual additions ceiling.

And it produces the failure mode:

The Excess Deferral No Employer Can Detect

Neither employer knows what the other's plan received.

The two situations that cause it: an employee who changed jobs mid-year and deferred at both, and an employee with two concurrent jobs. Each employer's payroll caps deferrals at the annual limit for its own plan, which is exactly correct and does not prevent the individual from exceeding the personal limit across both.

It is the individual's responsibility, and they almost never know.

The correction has a deadline. An excess deferral must generally be distributed by a date shortly after year end, and the individual has to request it from one of the plans — the plan will not initiate it. Missing the deadline produces the worst outcome available in this area: the excess is taxed in the year deferred and again when eventually distributed, with no offsetting basis relief. Double taxation on the same dollars, permanently.

What an advisor should do: for every client who changed jobs or held two jobs during the year, add up the deferrals from both wage statements in January. It takes two minutes and it is the check nobody performs. Where there is an excess, request the corrective distribution immediately and confirm it in writing.

Catch-Up Mechanics

Three layers, and the third is unsettled enough to require verification.

The age-based catch-up allows an additional deferral once the participant reaches the specified age, and it is available in the year they reach it rather than on the birthday.

An enhanced catch-up is available within a specified older age band, at a higher amount than the standard catch-up. Confirm the band and the amount.

A requirement that catch-up contributions be made on a Roth basis for participants above a compensation threshold was enacted, and its applicability date has been delayed with transition relief. This must be verified before advising anyone, because the operational consequences are significant: a plan without a Roth feature cannot accept catch-up contributions from affected participants at all, which means the plan needs an amendment before the requirement applies to it.

Also: catch-up availability depends on the plan permitting it, and the plan document governs.

Interactions Between Plan Types

Where genuine planning opportunities and genuine errors both live.

401(k) and 403(b) deferrals share the same personal limit. An individual participating in both cannot defer the limit twice.

A 457(b) plan has a SEPARATE limit. This is the most valuable interaction to know: an individual with access to both a 401(k) or 403(b) and a governmental 457(b) can defer up to each limit — effectively doubling their deferral capacity. Clients in public education, government, and certain non-profit roles frequently have this available and are not using it.

SIMPLE plans have their own lower deferral limit and their own catch-up, and an individual participating in a SIMPLE and another employer's plan is subject to the overall personal deferral limit across them.

SEP contributions are employer contributions and are not subject to the deferral limit, but they count toward the annual additions limit for that employer.

The employer deduction limit is a separate ceiling from the annual additions limit, and it is what binds when an employer maintains both a defined benefit and a defined contribution plan — the interaction covered in our post on defined benefit and cash balance plans.

After-tax contributions beyond the deferral limit, where a plan permits them, are constrained by the annual additions limit rather than by the deferral limit — which is the mechanism behind the strategy of large after-tax contributions followed by in-plan Roth conversion. Two cautions: the plan must permit both features, and after-tax contributions are subject to nondiscrimination testing that frequently limits what highly compensated participants can actually contribute, per our post on ADP and ACP testing.

The Compensation Limit

The annual compensation limit caps the amount of compensation that may be counted for plan purposes — allocations, matching formulas, and testing.

Its practical effect is on high earners: an employee earning well above the limit receives a match computed only on compensation up to the cap, which frequently surprises them. It also affects owner-employee computations below.

Owner-Employee Cases

Where the arithmetic is different and errors are common.

An S corporation owner's deferral is limited by their W-2 wages. An owner taking minimal wages and substantial distributions has limited their own deferral capacity, which is one of the tensions in the reasonable compensation analysis discussed in our post on year-end tax planning — a lower wage reduces employment taxes and reduces what can be contributed.

A sole proprietor's or partner's deferral is computed on net earnings from self-employment, reduced by the deductible portion of self-employment tax and by the retirement contribution itself — a circular computation that must be solved rather than estimated. Practitioners who apply the limit to gross Schedule C income overstate the permitted contribution.

Controlled group and affiliated service group aggregation means an owner with several entities may have one combined limit rather than one per entity, and the aggregation question should be asked of every client with more than one business.

What Advisors Should Do in January

Confirm the limits from the authoritative annual announcement, not from a summary.

Update deferral elections for every client contributing the maximum, since a client whose election is a dollar amount will under-contribute when the limit rises. This is the single most common missed opportunity — clients set an amount years ago and never revisited it.

Reset payroll caps where an employer configures a maximum.

Check every client who changed jobs or held two jobs last year for an excess deferral, per above.

Confirm catch-up eligibility for clients entering an age band, and — where the Roth catch-up requirement applies — confirm the plan can accept it.

Review the 457(b) opportunity for any client with access to both plan types.

Revisit the reasonable compensation and contribution interaction for owner clients.

Structured coverage is available through the 401(k) Training and Certification Program, the version with procedures manual and alerts, the retirement plan administration catalog, HS 326: Planning for Retirement Needs, the Certificate in Integrated Wealth Planning and Advice, the Retirement Tax Guide, and IRA Essentials.

Where This Goes Wrong

• Conflating the deferral limit with the annual additions limit, which explains most errors in the area
• Assuming an employer can detect an excess deferral across two jobs, which it cannot
• Missing the excess deferral correction deadline, producing permanent double taxation
• A client's deferral election set as a fixed dollar amount years ago and never increased
• Assuming catch-up is available without confirming the plan permits it
• Advising on the Roth catch-up requirement without confirming its current applicability date
• A plan without a Roth feature unable to accept catch-up from affected participants
• Missing the separate 457(b) limit for a client with access to both plan types
• Applying the deferral limit to gross self-employment income rather than solving the circular computation
• An S corporation owner's low wage limiting their own contribution capacity, unexamined
• Controlled group aggregation not asked about for a client with several entities
• A high earner surprised that the match was computed on capped compensation

The summary for an advisor in January: look up this year's figures rather than recalling them, raise the deferral election for every client who is maxing out, and add up both wage statements for anyone who changed jobs last year — because that excess deferral is the one error in this area that nobody else will catch and that becomes permanently expensive if the deadline passes.

Frequently Asked Questions

What is the difference between the deferral limit and the annual additions limit?

The elective deferral limit is per person, across all plans of all employers in a calendar year. The annual additions limit is per employer — total deferrals, employer contributions, and allocated forfeitures under that employer's plan, subject to aggregation for related employers. So an individual with two unrelated employers has two annual additions limits and only one deferral limit.

How does an excess deferral happen and who is responsible?

It happens when someone changes jobs mid-year or holds two concurrent jobs, since each employer's payroll correctly caps deferrals for its own plan and neither can see the other. Responsibility is the individual's, they almost never know, and the correction requires them to request a distribution from one plan by a deadline shortly after year end.

What happens if the excess deferral deadline is missed?

The excess is taxed in the year it was deferred and taxed again when eventually distributed, with no offsetting relief — permanent double taxation on the same dollars. Which is why adding up both wage statements in January for any client who changed jobs is a two-minute check worth performing.

Can someone contribute to both a 401(k) and a 457(b) plan up to each limit?

Generally yes, and it is the most valuable interaction in this area. A 457(b) plan has a separate limit from the shared 401(k) and 403(b) deferral limit, which effectively doubles deferral capacity for individuals in public education, government, and certain non-profit roles — many of whom have the option and are not using it.

How is a self-employed person's contribution computed?

On net earnings from self-employment, reduced by the deductible portion of self-employment tax and by the retirement contribution itself — a circular computation that has to be solved. Applying the limit to gross Schedule C income overstates the permitted contribution, which is a common error.

What should advisors do in January besides looking up the new limits?

Update deferral elections for clients contributing the maximum, since an election set as a fixed dollar amount years ago will under-contribute when the limit rises — the most commonly missed opportunity in this area. Also reset employer payroll caps, check job-changers for excess deferrals, confirm catch-up eligibility and whether the plan can accept a Roth catch-up where required, and revisit the compensation and contribution interaction for owner clients.