Employee Ownership Blog

IRS Announces 2027 COLA Plan Limits

Today the IRS announced its annual cost-of-living (COLA) increases to plan limits for 2027, which are detailed in Notice 2026-66 (PDF). The most important figures for ESOPs and related plans are:

  • The Section 415 limit on combined employer and employee annual additions to defined contribution plans increases to $75,000, up from $72,000 for 2026.
  • The annual compensation limit on what counts as eligible pay increases to $375,000, up from $360,000 for 2026.
  • The maximum account balance in an ESOP subject to a five-year distribution (account values over this amount can be distributed over periods longer than five years) increases to $1,505,000, up from $1,455,000 for 2026.
  • The dollar amount used to determine the lengthening of the five-year distribution period increases to $300,000, up from $290,000 for 2026 (so the five-year period can be extended by one year for each $300,000 or fraction thereof that the account exceeds $1,505,000, up to a maximum of five additional years).
  • The threshold used in defining a “highly compensated employee” increases to $170,000, up from $160,000 for 2026.
  • The threshold used in defining a “key employee” for top-heavy plan purposes increases to $245,000, up from $235,000 in 2026.
  • The maximum annual 401(k) deferral increases to $25,500, up from $24,500 for 2026.
  • The catch-up 401(k) deferral limit for employees aged 50 and over increases to $8,500, up from $8,000 for 2026, for a total of $34,000.
  • The SECURE 2.0 Act of 2022 provided a higher 401(k) catch-up contribution limit for employees aged 60 to 63, starting in 2026. For 2027, this higher limit increases to $11,750, up from $11,250 for 2026.