The Internal Revenue Service announced Thursday that workers can stash away more money in their 401(k) retirement accounts starting in 2026, offering a welcome opportunity for Americans focused on building their nest eggs. The new limits reflect adjustments for inflation and provide extra room for savers to grow their retirement funds tax-deferred.
Starting next year, employees can defer up to $24,500 into workplace retirement plans, representing a $1,000 increase from the current $23,500 limit set for 2025. The change applies to traditional 401(k) plans, 403(b) plans offered by nonprofits and schools, most 457 plans used by government workers, and the federal Thrift Savings Plan.
Older workers get even more savings power
- The agency also unveiled new catch-up contribution limits for savers who have reached age 50 or older. These workers can set aside an additional $8,000 beyond the standard limit, up from $7,500 in 2025. Combined with the base deferral amount, someone in this age group could contribute a total of $32,500 to their 401(k) in 2026.
- A special provision for workers aged 60 to 63 allows them to save even more aggressively as they approach retirement. This group can make catch-up contributions of $11,250 instead of the standard $8,000, a benefit that was established through the Secure 2.0 legislation. That figure remains unchanged from 2025 but still provides significant additional savings capacity for people in their early 60s who want to maximize their retirement funds before leaving the workforce.
Most workers are not hitting the maximum
Despite the availability of these generous contribution limits, relatively few Americans actually max out their 401(k) accounts. Only 14% of participants contributed the maximum allowed amount in 2024, according to Vanguard’s 2025 How America Saves report, which analyzed data from more than 1,400 qualified retirement plans covering nearly 5 million participants.
The average combined savings rate, which includes both employee contributions and employer matching deposits, reached approximately 12% according to the Vanguard analysis. A separate study by Fidelity Investments found a slightly higher combined rate of 14.2% during the second quarter of 2025, based on data from more than 25,000 corporate plans and 24.6 million participants.
Understanding what these numbers mean for you
- The new $24,500 limit represents the amount workers can contribute from their paychecks through salary deferrals. This money goes into the account before taxes are taken out, reducing taxable income for the year while the investments grow tax-deferred until withdrawal during retirement.
- Employer matching contributions do not count against the employee deferral limit. Many companies offer to match a percentage of what workers contribute, essentially providing free money that boosts retirement savings. These employer deposits have their own separate limits that are typically much higher.
- The catch-up contributions exist specifically to help people who may have started saving late or who want to accelerate their retirement preparations as they get closer to leaving the workforce. The enhanced $11,250 catch-up for those aged 60 to 63 recognizes that this group often has higher earnings and fewer financial obligations like mortgage payments or children’s education expenses.
Other retirement account changes announced
The IRS also revealed new contribution limits for individual retirement accounts and updated income thresholds that determine who can contribute to Roth IRAs. These announcements came as part of a broader package of inflation adjustments affecting various aspects of the tax code for 2026.
The timing of Thursday’s announcement followed shortly after President Donald Trump signed legislation ending what had been the longest federal government shutdown in United States history. The IRS had previously released dozens of other inflation adjustments for 2026 about a month earlier, including updated federal income tax brackets, capital gains thresholds and provisions that impact families.
Making the most of higher limits
Financial advisors generally recommend that workers contribute at least enough to their 401(k) to capture the full employer match if one is offered, since failing to do so means leaving free money on the table. Beyond that baseline, increasing contributions whenever possible helps build retirement security.
For those who can afford to maximize their 401(k), the tax benefits become substantial. Contributing $24,500 could reduce taxable income by that amount, potentially lowering tax bills by thousands of dollars depending on someone’s tax bracket. The money then grows without annual tax on investment gains until retirement withdrawals begin.
Source: This article is based on reporting by Kate Dore for CNBC.