IRS Raises Retirement Contribution Limits for 2026

IRS Raises Retirement Contribution Limits for 2026: 401(k) Cap Increases to $24,500

The Internal Revenue Service (IRS) announced that contribution limits for workplace retirement accounts will rise in 2026, offering workers slightly more room to save amid persistent concerns about retirement preparedness.

Starting next year, employees will be able to contribute up to $24,500 to their 401(k) plans — a $1,000 increase from the 2025 limit.

Roughly 70% of private-sector workers have access to a 401(k), though only a small share contributes the maximum amount each year.

■ Higher Catch-Up Limits for Workers 50 and Older

To help older workers accelerate their retirement savings, catch-up contributions will also increase:

• The 50+ catch-up limit will rise from $7,500 to $8,000,
  bringing the total possible annual contribution for those 50 and older to $32,500.

• Workers aged 60–63 will be able to contribute even more, up to $35,750.

■ IRA Contribution Limit Rises to $7,500

The annual limit for both traditional and Roth IRAs will increase from $7,000 to $7,500 in 2026.
For individuals 50 and older, the catch-up contribution will increase to $1,100, allowing for a total IRA contribution of $8,600.

■ High Earners Must Use Roth 401(k) for Catch-Ups

One of the most significant policy changes affects high earners.
Beginning in 2026, workers who earn more than $150,000 in the prior year must make their catch-up contributions exclusively into Roth 401(k) accounts.

Traditional 401(k)s allow pre-tax contributions with taxes due upon withdrawal, while Roth 401(k)s require after-tax contributions that can be withdrawn tax-free in retirement.

The change effectively requires high-income workers to pay taxes upfront on their catch-up contributions.
If an employer does not offer a Roth 401(k), high earners will not be able to make catch-up contributions at all.

■ Few Workers Max Out Their 401(k)s

Despite rising limits, only a minority of workers contribute the maximum amount.
According to Vanguard, just 14% of participants maxed out their 401(k) contributions last year.
The average combined employee-employer savings rate was approximately 12%.

A separate analysis from Fidelity shows that the average 401(k) savings rate in the second quarter of this year was 14.2%, largely unchanged from the prior year.