2027 Retirement Plan Limits for Business Owners, and the Roth Catch-Up Rule That Catches S Corp Owners

TL;DR: The IRS released the 2027 retirement plan limits on November 12, 2026. A business owner can defer $25,500 into a 401(k) next year, $34,000 at age 50 and up, and $37,250 at ages 60 through 63. The cap on total contributions to a defined contribution plan rises to $75,000. One rule changes the math for higher earners: if your company paid you more than $155,000 in W-2 wages in 2026, every dollar of catch-up you put in during 2027 has to go in as Roth, with no deduction now. S corp owners take W-2 salary, so they land right in this rule. Sole proprietors and partners who only have self-employment income don't.

Key Takeaways

• The 2027 employee deferral limit for 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan is $25,500, up $1,000 from 2026.
• The age 50+ catch-up rises to $8,500. Ages 60 through 63 get $11,750 instead.
• The total defined contribution limit (employee plus employer money) rises from $72,000 to $75,000.
• The Roth catch-up rule applies in 2027 to anyone whose 2026 Social Security wages (Box 3 of the W-2) from the employer sponsoring the plan topped $155,000.
• S corp shareholder-employees get W-2 wages, so they're covered. A partner or sole proprietor with only self-employment income isn't.
• If your plan has no Roth option and you're over the threshold, you can lose the catch-up entirely. Check your plan document before January.

What are the 2027 401(k) and retirement plan limits?

The short version: everything that moves went up, except the IRA.

The IRS announced the numbers in News Release IR-2026-136 on November 12, 2026, and published the technical detail in Notice 2026-66. Here are the ones a business owner actually uses.

Add the deferral and the catch-up together and you get the most you can put in yourself: $34,000 at 50 and up, $37,250 if you turn 60, 61, 62, or 63 during 2027.

The other half of the IRS's 2027 inflation numbers, covering Section 179, the excess business loss limit, and estate and gift, is in The IRS's 2027 Inflation Numbers: Section 179, Excess Business Loss, Estate and Gift.

Catch-ups also sit outside the $75,000 total. Section 414(v)(3)(A) of the Code says a catch-up contribution isn't subject to the Section 415(c) limit for the year it's made. For a solo 401(k) owner, that means the $75,000 ceiling covers your regular deferral plus whatever the company contributes as the employer, and the catch-up rides above it.

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

Anyone who's catch-up eligible and was paid more than $155,000 in 2026 FICA wages by the employer that sponsors the plan.

This rule comes from Section 603 of the SECURE 2.0 Act, which added Section 414(v)(7) to the Internal Revenue Code. The Treasury and IRS finalized the regulations in T.D. 10033, published in the Federal Register on September 16, 2025. The statute set the threshold at $145,000, indexed for inflation. For 2027 the indexed figure is $155,000.

Three details decide whether you're in or out.

It looks back one year. Your 2027 catch-ups are judged by your 2026 wages. The pay you take in December 2026 counts. The pay you take in 2027 doesn't count until 2028.

It counts Social Security wages, not total income. The final regulations tie the test to the wages reported in Box 3 of your Form W-2. The preamble says Box 5, the Medicare wages box, does not relate to Social Security coverage, so it's not the measure. Distributions, K-1 income, rental income, and investment income don't count at all.

It only counts wages from the employer sponsoring the plan. The regulations define that as your common law employer that contributes to the plan. If you own two companies and only one sponsors the 401(k), only that company's W-2 counts, unless the plan elects to aggregate related employers.

The rules generally apply to contributions in taxable years beginning after December 31, 2026. For 2026 itself, the IRS required a reasonable, good faith interpretation of the statute. So 2027 is the first year the detailed regulations bind in full.

Why does the Roth catch-up rule hit S corp owners and not sole proprietors?

Because one of them gets a W-2 and the other doesn't.

When you own an S corporation and work in the business, you're an employee of your own company. You take a salary, payroll withholds Social Security and Medicare, and you get a W-2 with a number in Box 3. If that number was above $155,000 in 2026, you're in the Roth catch-up rule for 2027. Owning 100% of the company doesn't change that.

A sole proprietor, or a partner in a partnership or multi-member LLC, gets paid differently. No W-2. Their pay shows up as net earnings from self-employment. The final regulations address this directly: the preamble says a partner who had only self-employment income has no FICA wages and isn't subject to the requirement for the following year. The same logic covers a single-member LLC taxed as a sole proprietorship, since the preamble treats the owner of a disregarded entity as the employer sponsoring the plan.

So two owners can earn the same $300,000 from the same kind of business and land on opposite sides of this rule purely because of entity choice. The S corp owner's catch-up goes in as Roth. The sole proprietor's can still go in pre-tax.

Keep your entity. The S corp election usually exists for payroll tax reasons that dwarf a catch-up deduction. What changes is the planning: know which side of the line you're on before your CPA maps out your 2027 contributions.

What happens if your plan doesn't offer a Roth option?

You could lose the catch-up completely.

This is the part that bites small plans. The final regulations allow a plan with no Roth feature to simply bar participants who are subject to the Roth catch-up rule from making catch-up contributions at all, while still letting everyone else make them. If you set up a solo 401(k) or a small company plan years ago and never looked at the document again, check whether it includes a Roth contribution program. Plenty of owners assume it does without ever reading the plan.

For an owner aged 60 to 63, that's $11,750 a year that can't go into the plan in any form. The fix is usually a plan amendment to add a designated Roth feature, and your plan provider or third party administrator is the one to call. Make the call before your first 2027 payroll, not after.

Should an S corp owner cut salary to stay under $155,000?

No. Set your salary by what the work is worth, not by this rule.

An S corp owner's salary has to be reasonable compensation for the services they perform. Cutting pay below that to dodge a Roth requirement trades a small timing issue for a real audit issue. And the trade doesn't even pay. Every dollar of salary you cut also shrinks the base the company can use for its employer contribution to your 401(k), which can cost you more retirement room than the catch-up deduction was ever worth.

If your salary is already set correctly and happens to sit near $155,000, that's fine. Just know where you landed for 2026 before the year closes, because December payroll decides 2027.

What does a Roth catch-up actually cost you?

You give up this year's deduction and keep every dollar of the contribution.

Take an S corp owner, 55 years old, who drew $180,000 in W-2 salary in 2026. In 2027 she can still put in the full $8,500 catch-up. It just goes in as Roth. Say her top federal rate is 32%. Losing the deduction on $8,500 means about $2,720 more federal tax for 2027. Plug in your own rate; the math works the same way.

In exchange, that $8,500 and everything it earns comes out tax-free in retirement, assuming she follows the Roth distribution rules. For an owner who expects to be in a high bracket later, or who wants tax-free money to leave to heirs, that trade can work in her favor. She'd still rather have had the choice in a high-income year.

The real cost is when the plan has no Roth option, covered above. A Roth catch-up is a timing change. A missing catch-up is gone.

The 2027 playbook for business owners

Here's what I'd do before December 31, in this order.

1. Pull your 2026 Box 3 number. Ask your payroll provider for year-to-date Social Security wages and projected December payroll. Above $155,000 from the plan sponsor means Roth catch-ups in 2027.
2. Read your plan document. Confirm whether the plan has a designated Roth feature. No Roth feature plus wages over the threshold means no catch-up.
3. Amend if needed. If you're over the line and your plan lacks Roth, talk to your plan provider about adding it before your first 2027 payroll.
4. Update your deferral elections. Raise your base deferral to $25,500 and set catch-ups to Roth if you're covered. If you turn 60 through 63 in 2027, make sure the plan allows the $11,750 catch-up.
5. Replace the lost deduction somewhere else, legally. If Roth catch-ups take $8,500 of deductions off your 2027 return, look at what else you own. Business owners who also own their building often have depreciation sitting unclaimed in it.

That last one is where I spend my working life. If your business owns the building it operates from, or you hold rental property on the side, an engineering-based cost segregation study can move a big share of that building's cost into 5, 7, and 15 year property and pull years of depreciation forward. That won't make sense for every building, and I'll tell you when it doesn't.

None of this replaces your CPA or your plan administrator. Your plan document, your payroll, and your entity setup decide how these rules apply to you, so walk through them with your team before you act.

Frequently Asked Questions

What is the 401(k) contribution limit for 2027?

The 2027 employee deferral limit for 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan is $25,500, up from $24,500 for 2026. Savers aged 50 and over can add an $8,500 catch-up, and savers aged 60 through 63 can add $11,750 instead.

What is the Roth catch-up wage threshold for 2027?

$155,000. If your 2026 Social Security wages from the employer sponsoring your plan exceeded $155,000, your 2027 catch-up contributions must be made as Roth contributions. The figure appears in IRS Notice 2026-66.

Does the Roth catch-up rule apply to S corp owners?

Yes. An S corp owner who works in the business receives W-2 wages. If those wages, reported in Box 3 of the W-2, exceeded $155,000 in 2026 from the company sponsoring the plan, the owner's 2027 catch-up contributions must go in as Roth.

Does the Roth catch-up rule apply to sole proprietors and partners?

Generally no. The rule is triggered by FICA wages. The final regulations state that a partner who had only self-employment income has no FICA wages and is not subject to the requirement. The same reasoning applies to a sole proprietor with no W-2 wages.

What if my 401(k) plan has no Roth option?

If you are subject to the Roth catch-up requirement and your plan does not offer designated Roth contributions, the plan can bar you from making catch-up contributions at all. Adding a Roth feature to the plan is usually the fix.

What is the total 401(k) limit for 2027 including employer contributions?

The total defined contribution limit under Section 415(c) is $75,000 for 2027, up from $72,000. That covers employee deferrals and employer contributions combined.

Talk it through with me

If you own the building your business runs out of, or rental property on the side, I'll run a no-cost analysis through CSSI to see whether a cost segregation study would pay for itself. No obligation and no pitch. If the numbers don't work, I'll tell you so. You don't need to gather anything before the first call.

Book a time at calendly.com/david-wiener/cs, or call 770-224-8504, option two.

This article is for education only and isn't tax, legal, or investment advice. Retirement plan rules depend on your plan document and your facts.

Sources

• IRS, News Release IR-2026-136, "401(k) limit increases to $25,500 for 2027, IRA limit remains $7,500" (Nov. 12, 2026): https://www.irs.gov/newsroom/401k-limit-increases-to-25500-for-2027-ira-limit-remains-7500
• IRS, Notice 2026-66, 2027 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living: https://www.irs.gov/pub/irs-drop/n-26-66.pdf
• 26 U.S.C. § 414(v)(3)(A), treatment of catch-up contributions: https://www.law.cornell.edu/uscode/text/26/414
• Treasury and IRS, T.D. 10033, Catch-Up Contributions, 90 FR 44527 (Sept. 16, 2025): https://www.federalregister.gov/documents/2025/09/16/2025-17865/catch-up-contributions