IRS Sets 2027 401(k) Limit at $25,500, IRA Flat at $7,500

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IRS Sets 2027 401(k) Limit at $25,500, IRA Flat at $7,500
IRS Sets 2027 401(k) Limit at $25,500, IRA Flat at $7,500
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The IRS raised the 2027 401(k) contribution limit to $25,500 on November 12, up $1,000 from 2026, and left the IRA limit flat at $7,500.

If you run your store through a single-member LLC, $25,500 is the most you can defer from your own pay into a Solo 401(k) next year, before catch-up contributions. It also shapes how much profit you can shelter from tax. I track moves like this for store owners at Ecommerce Paradise. This one matters most if you run a high-ticket dropshipping store with real profit to protect.

Below I cover what the IRS published, how the numbers compare with 2026, and what I’d do about it, including five moves to make before the year ends. I read the IRS release, a technical analysis of Notice 2026-66, 2News coverage and IRS guidance for the self-employed. My Solo 401(k) contribution limits guide still shows the 2026 figures. The IRS release does not list the total plan limit for owners, so I flag where a figure comes from a secondary source.

Your retirement contribution is built on your net profit, so get the books right before you fund anything. Track every sale, ad dollar and supplier bill so the number your CPA uses is the real one. Set up your store’s books in QuickBooks →

IRS 2027 Limits: 401(k) Hits $25,500, IRA Stays at $7,500

The IRS announced the 2027 cost-of-living adjustments on November 12 in news release IR-2026-136, which points to Notice 2026-66. The 401(k) elective deferral limit rises to $25,500 from $24,500, according to the IRS. The same limit covers 403(b) plans, most governmental 457 plans and the federal Thrift Savings Plan.

Catch-up contributions for workers 50 and older rise to $8,500 from $8,000, per the IRS, which puts their total at $34,000. Workers ages 60 to 63 get a higher catch-up of $11,750, and 2News reports that lets their total reach $37,250.

The IRA limit does not move. Traditional and Roth IRAs stay at $7,500, and the IRA catch-up for age 50 and older stays at $1,100, according to the IRS. SIMPLE plans rise to $17,500 from $17,000, with a higher $19,100 limit for certain applicable plans. The SIMPLE catch-up stays at $4,000.

Limit 2026 2027
401(k) employee deferral $24,500 $25,500
401(k) catch-up, age 50 and older $8,000 $8,500
Traditional and Roth IRA $7,500 $7,500
SIMPLE plan $17,000 $17,500
Roth IRA phase-out, single $153,000 to $168,000 $158,000 to $173,000
Roth IRA phase-out, married filing jointly $242,000 to $252,000 $250,000 to $260,000

All six rows come from the IRS release. The traditional IRA deduction phase-out for a single filer covered by a workplace plan also moves, to $83,000 to $93,000 from $81,000 to $91,000, per the IRS.

The numbers that matter most to a sole owner are not in the release. A technical analysis from Current Federal Tax Developments reports that Notice 2026-66 lifts the total annual additions limit, the cap on all contributions to one person’s plan account, to $75,000 from $72,000. It also reports the plan compensation limit at $375,000 from $360,000, the SEP minimum compensation unchanged at $800, and the Roth catch-up wage threshold at $155,000 from $150,000. I could not pull the notice text itself, so confirm those four figures there before you plan around them.

The 2026 Baseline: $72,000 Total Cap, $24,500 Deferral Limit

The 2026 numbers show what moved. The 2026 deferral limit was $24,500, per the IRS table. SelfEmployed.com reported in July that the 2026 total limit for Solo 401(k) and SEP IRA plans was $72,000, up from $70,000 in 2025.

That means the total limit climbed $2,000 into 2026 and, if the secondary source is right, $3,000 into 2027. The employee deferral limit rose $1,000 this time.

Catch-up rules sit on top. SelfEmployed.com says a Solo 401(k) owner age 50 or older could reach $80,000 in 2026 with the $8,000 catch-up, and $83,250 at ages 60 to 63. A SEP IRA allows no catch-up. The same article puts the income needed to reach the $72,000 SEP cap at about $288,000 in net self-employment income, because a SEP is limited to 25% of compensation.

The $375,000 compensation limit rarely touches a store owner. It caps the pay a plan can count when it figures the employer share, so it only matters when profit or W-2 pay climbs past that line. The $75,000 total is the number to watch if you are scaling fast.

The IRS describes the mechanics in its guidance for self-employed people. A SEP contribution can be as much as 25% of net earnings. A Solo 401(k) lets you defer salary first and then add up to another 25%. You can set up a SEP as late as the due date of your tax return, including extensions. That page still shows 2024 dollar limits, so use it for the rules and not the numbers.

I covered the other 2027 tax numbers earlier. On November 9 I wrote about the 2027 brackets and the $2.64 million Section 179 limit. On October 23 I covered the IRS rewrite of its retirement plan fix rules.

The counterpoint is that this is a small raise. The 401(k) limit rises about 4.1% and the IRA limit does not move, so an owner who only uses an IRA gets zero extra room. One year of adjustments also tells you nothing about the next one.

What the $25,500 Limit Does to a High-Ticket Store’s Cash Plan

My read is that the $1,000 raise is nice and mostly beside the point. For a store owner, the binding constraint is rarely the IRS limit. It is cash.

Start with the profit math. High-ticket stores usually run thin net margins, and I tell students to plan on 7% to 10% net. At an 8% net margin, a store needs about $1.9 million in revenue to net $150,000. That is hypothetical, not reported data, and it is a store many readers are still building.

Now take that hypothetical $150,000 owner running a single-member LLC. They can defer the full $25,500 as the employee. A sole proprietor’s employer share generally works out to about 20% of net earnings after the deduction for half of self-employment tax, which I estimate at roughly $27,900. That puts the combined contribution near $53,400, well under the $75,000 total limit. Treat it as a rough estimate. The worksheets in IRS Publication 560 give the exact number, and your CPA should run it.

Three scenarios show where the thresholds sit, and all three are hypothetical. At $60,000 in net profit, the full $25,500 deferral pulls 42.5% of your profit out of operating cash, so you may choose to defer $10,000 instead. The employee deferral is the flexible part. At $150,000, the full deferral is 17% of profit and fits most store budgets if you keep enough cash for ads and inventory. At $300,000, the same formula produces roughly $82,000, so the $75,000 total limit becomes the ceiling, per the secondary source.

For the $300,000 case I used the $192,300 Social Security wage base I covered in my October post on the 2027 wage base. Your own numbers will differ, so do not copy mine.

Income limits matter if the store does well. The Roth IRA phase-out for single filers ends at $173,000 in 2027, per the IRS, and it is based on modified adjusted gross income. An owner above that line cannot contribute directly to a Roth IRA. My read is that this makes the plan itself the main place to build retirement savings, so ask your provider whether it allows Roth deferrals, because plans differ.

The flat IRA limit changes little for owners who already fill a Solo 401(k). The IRA is a separate bucket with its own $7,500 limit. The deduction phase-outs in the IRS table apply when you are covered by a workplace plan, and a Solo 401(k) generally counts as one.

What I’d do is treat the deferral as a monthly budget line and not a year-end scramble. Pick a percentage of net profit, move it on the same day each month, and revisit it every quarter against ad spend and inventory orders. A store that pays for ads up front and waits on supplier terms needs cash during holiday peaks, so I’d defer less when float is tight and more when it is loose.

Every dollar you defer is a dollar you cannot spend on ads or inventory float, and money in a 401(k) is locked up. Withdrawals before age 59 and a half generally trigger an extra 10% tax, with exceptions. My lean first-year budget for a high-ticket store is the place to start if you are not sure how much cash your store should keep on hand.

If you elected S corporation status, the employer share is generally a percentage of your W-2 pay and not your profit, so the math changes. The Roth catch-up rule matters then too. The analysis puts the 2027 wage threshold at $155,000 in prior-year wages, and above it catch-up contributions generally must go in as Roth. Ask your plan provider how that applies to you.

Clean books decide how well you use the room. Your contribution depends on net profit, and net profit depends on books you can trust. Finaloop is an accounting tool built for ecommerce stores. Clean books also raise what a store sells for, which I covered in my post on exit value.

Where you open the plan matters less than opening it. Brokerages such as Schwab run individual 401(k) plans. My Solo 401(k) provider comparison lays out fees, Roth options and loans.

If your store is not throwing off profit yet, this limit is a problem for later and building the store comes first. That is what my turnkey done-for-you build is for. I’m not a financial or tax advisor, so run your numbers past a CPA before you fund anything.

More net profit means more room to shelter it. Want my team to scale the store you already have? See the scaling service →

Five Moves to Set Up Your 2027 Retirement Contributions Now

Here are five moves I’d make before the year ends.

  1. Pull your 2026 year-to-date net profit from your books and project it through December. If you do not have a clean ledger, set one up in QuickBooks. My guide to the Shopify QuickBooks integration covers the setup.
  2. Pick your plan. A Solo 401(k) usually allows the larger total, and the IRS says a SEP can be set up late. My Solo 401(k) vs SEP IRA comparison walks through the trade.
  3. Keep store cash apart from personal money so funding the plan is a clean transfer. A business account from Mercury does that. My walkthrough for opening a Mercury account shows the application steps.
  4. If you run an S corporation, set your 2027 salary now, because the employer share and the Roth catch-up rule key off W-2 pay. A payroll tool such as Gusto handles the filings. I covered one alternative in Mercury’s payroll launch.
  5. Hire help for the books. A virtual assistant from OnlineJobs.ph can categorize transactions weekly so your profit number is ready when your CPA asks. If you want my team’s eyes on your store, start at the discovery page.

Frequently Asked Questions

What is the 2027 401(k) contribution limit?
$25,500, up from $24,500, according to the IRS. The catch-up for age 50 and older is $8,500, and workers ages 60 to 63 get $11,750.

Did the IRA limit or the Roth income limits change?
The IRA limit stays at $7,500 and the IRA catch-up stays at $1,100. The Roth IRA income phase-outs do rise, to $158,000 to $173,000 for single filers and $250,000 to $260,000 for married couples filing jointly.

What is the 2027 total limit for a Solo 401(k) or SEP IRA?
One technical analysis reports $75,000, up from $72,000. The IRS release does not list it, so confirm it in Notice 2026-66. My SEP IRA contribution limits guide explains how the percentage rules work.

Can I fund an IRA and a Solo 401(k) in the same year?
Generally yes, because the IRA limit is separate from the 401(k) deferral limit. The IRS deduction phase-outs for a traditional IRA apply when you are covered by a workplace plan, so check them with your CPA.

When do I need to set up a plan?
The IRS says a SEP can be set up as late as the due date of your tax return, including extensions. Solo 401(k) deadlines vary by provider, so ask yours. You can compare brokerages in my Fidelity vs Vanguard vs Schwab breakdown.

Does any of this change if I live abroad?
Living abroad adds rules, so confirm with a CPA who handles expats. My expat tax filing guide covers the basics.

Where do I start if my store is not profitable yet?
Get profit first. Pick a niche where margins can support you, and start with the free high-ticket niches list.

Not sure how much of this fits your store’s cash flow? Get 1-on-1 coaching to launch or fix your high-ticket store. Get the coaching details →

The IRS limits are set, and now it is your plan that needs a number. Subscribe to the YouTube channel for daily breakdowns. More breaking news coming through the day.

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