The IRS has decided to increase the 401(k) contribution limit to $24,500 for the year 2026. This change offers workers an extra $1,000 in tax-deferred savings. However, it appears that only a small fraction of employees actually utilize this maximum contribution.
This increase was announced recently and applies to various retirement plans, including 401(k), 403(b), most 457 plans, and federal Thrift Savings Plans.
For those aged 50 and older, the catch-up contribution limit is set to rise from $7,500 in 2025 to $8,000 next year. This means seniors can potentially contribute up to $32,500 into their 401(k) plans.
Interestingly, workers between 60 and 63 will enjoy even greater benefits, allowing them to contribute an extra amount, totaling up to $35,750, which is exactly the same as this year due to regulations set in the Secure 2.0 Act of 2022.
Despite these higher limits, a significant number of employees do not take full advantage of them. In fact, only 14% of participants maxed out their 401(k) contributions in 2024, according to a report by Vanguard that examined over 1,400 plans and nearly 5 million participants.
The average savings rate, which includes employer contributions, was recorded at 12% in 2024, as per Vanguard. Fidelity Investments, on the other hand, found that the average total interest rate for the second quarter of 2025 was around 14.2% across more than 25,000 corporate plans.
Next year, the IRS will also increase IRA contribution limits, allowing employees to contribute $7,500 to either a Traditional IRA or Roth IRA, up from $7,000 in 2025. For those aged 50 and above, the catch-up contributions will rise from $1,000 to $1,100.
Moreover, the income thresholds for making Roth IRA contributions have been adjusted as well. Singles and heads of households can now make full Roth contributions if they earn less than $153,000, an increase from $150,000 in 2025. The phaseout range has also expanded to $168,000.
For married couples filing jointly, the phaseout range for Roth IRA contributions is now $242,000 to $252,000, up from $236,000 to $246,000 the previous year.
The IRS also modified the income range for deducting Traditional IRA contributions. For single taxpayers who are eligible for a workplace retirement plan, the range will shift to $81,000 to $91,000, compared to $79,000 to $89,000 in 2025.
For married couples where one spouse contributes to a workplace plan, the range now stands at $129,000 to $149,000, which increased from $126,000 to $146,000 in 2025.
The Savers Credit, aimed at helping low- and moderate-income workers save for retirement, has similarly seen its income limits rise. Married couples filing jointly can now qualify with incomes up to $80,500, a slight increase from $79,000 in 2025.
Workers with SIMPLE retirement accounts will also see increases in their contribution limits, which will range between $16,500 and $17,000 in 2026. For those aged 50 and older, the catch-up limit rises from $3,500 to $4,000.
The announcement came shortly after other significant news, including a funding bill signed by President Donald Trump aimed at ending a lengthy federal government shutdown.
Additionally, the IRS is also rolling out various other inflation adjustments, reflecting cost-of-living increases which help maintain the value of retirement savings incentives.
For employees capable of maximizing their 401(k) contributions, these raised limits present an opportunity to accrue more tax savings while enhancing their retirement funds. However, Vanguard’s findings indicate that most Americans may be focusing on more attainable savings goals or might simply be hesitant to contribute enough to meet the cap.
