Happy New Year! If one of your resolutions is to save more money for your financial future, then you’re in luck.
Every year, the IRS revisits its annual contribution limits for tax-advantaged retirement plans such as the 401(k) and Roth IRA and generally increases them to account for inflation. This may be a huge opportunity, especially for younger savers, because of the potential years of tax-deferred or tax-free growth (depending on the type of accounts you have).
In this post, we’ll cover what the new retirement plan contribution limits are for 2026, why it matters, and how you can take advantage of them.
Workplace Retirement Plans
The following are the updated 2026 annual maximum contribution limits for 401(k), 403(b), governmental 457 plans, and the federal government’s TSP (Thrift Savings Plan):
- $24,500 if you’re under age 50 (up from $23,500 for 2025)
- $32,500 if you’re age 50 or older (up from $31,000 for 2025)
- $35,750 if you’re between ages 60-63 (new as of the SECURE 2.0 Act)
Reminders:
- To participate in one of these plans, you must work at a place that offers them. You’ll be limited to the financial institution and investment options pre-selected by the plan administrator.
- If both you and your spouse are covered by a workplace retirement plan, then you can each contribute up to the maximum amount permitted separately. That effectively doubles the total contribution potential for your household.
- There are no income restrictions to participate in one of these plans.
Individual Retirement Accounts (IRAs)
The following are the updated 2026 annual maximum contribution limits for traditional and Roth IRAs:
- $7,500 if you’re under age 50 (up from $7,000 for 2025)
- $8,600 if you’re age 50 or older (up from $8,000 for 2025)
Reminders:
- These totals represent the total amount you may contribute across your IRAs, not each one individually.
- IRAs can be opened at any financial institution of your choice.
- The IRS imposes income restrictions that could make traditional IRA contributions non-deductible or prevent you from contributing to a Roth IRA altogether. You can find those latest income thresholds at IRS.gov.
- Assuming you and/or your spouse meet these income requirements, then you may each contribute up to the max to your IRA.
Why Should I Contribute More to My Retirement Accounts?
When the IRS raises the contribution limit on your 401(k), Roth IRA, or any other retirement that you use, it’s not something to ignore. There are several reasons to take advantage of this opportunity and start working your way up to the maximum amount possible.
Reach Your Goals Faster
Whether you want to achieve financial independence or just accumulate as much wealth as possible, your retirement accounts may help.
By design, these plans are investment accounts. That means you’ll be able to use them to buy funds that benefit from stocks, bonds, and other common financial assets.
Over time, these investments may compound in value. Therefore, the more you save, the faster your account balance may accelerate towards your targets.
Tax-Advantaged Growth
Speaking of compound returns, a big advantage to using retirement accounts over a regular taxable brokerage account is the tax savings. This will be realized in one of two ways, depending on the type of account you have:
- Traditional – Earnings will grow tax-deferred. Taxes won’t be due until you begin making penalty-free withdrawals (after age 59-1/2).
- Roth – Earnings will grow tax-free. Withdrawals can be taken any time after age 59-1/2 without adding to your tax bill.
Employer Matching
Are you leaving free money on the table? Many employers encourage using workplace retirement plans by offering to make matching contributions alongside the money you save. This may be anywhere from $0.25 to $1 for every dollar you contribute, up to some preset limit.
If you’re not already getting the max matching contribution, then you’ll definitely want to figure out how you could be. Check with your employer’s human resources department to find out the details.
Curbs Lifestyle Inflation
One of the unintended but useful consequences of saving more in your retirement accounts is that it naturally leaves you with less money to spend. This may be a good thing because it forces you to pay closer attention to your budget and keep your expenses to a minimum. Over time, that may help you to restrict your lifestyle from exceeding your financial resources.
How to Ramp Up Your Retirement Savings
If you’d like to bump up your savings rate, here are a few suggestions that may help to inch closer to maximizing your contributions.
Ratchet Up Your Savings Rate
Doubling your contributions most likely isn’t going to happen overnight. But it could potentially occur gradually over time if you do it strategically.
This may be done using the ratchet method. Start by increasing your savings rate by approximately 1%. Chances are you’ll barely notice the difference in your everyday life.
After a while, do it again by increasing by another 1%. Repeat this process for as long as it takes to eventually reach the IRS maximum.
This method works best if you maintain a budget. Your budget will help to identify where spending could be reduced and which expenses could be eliminated altogether. That may help ease the transition with each 1% increase.
Defer Your Raise
Did you get a raise at work? If so, then great!
Take the entire sum of the raise and increase your retirement plan contributions by the same amount – effectively deferring your new income into your retirement account. By doing so, your budget won’t feel any change since you’ll be living off the same amount as last year.
Stash Your Windfalls
Are you expecting a large check, such as a company bonus, tax refund, etc.? This is another perfect opportunity to put the whole thing into an IRA.
Again, this will most likely be money that you won’t need to cover your everyday expenses. Plus, unless you’ve got another financial goal in mind for this windfall, saving it in a tax-advantaged account may be a better long-term use of the funds.
Final Thoughts
Your retirement accounts are an opportunity to grow tax-advantaged wealth. Every time the IRS increases the limits, look at it as a chance to put more of your income to work more efficiently. While it may be years or even decades before you can access the money, thanks to the power of compounding and special tax treatment these accounts enjoy, you’ll be happy you took action today.
Featured image credit: Pexels
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