What You Need to Know:
The IRS has announced key updates to retirement-account contribution limits that take effect for the 2026 tax year — here’s what you should know and how it might affect you.
1. Higher Contribution Limits
Starting January 1, 2026, the contribution limit for most employer-sponsored plans, such as a 401(k) or 403(b) will rise to $24,500, up from $23,500 in 2025. For individuals aged 50 or older, the “catch-up” contribution limit increases to $8,000, up from $7,500. For those aged 60-63 in applicable plans, the higher catch-up limit stays at $11,250.
For IRAs (traditional and Roth), the standard contribution limit increases to $7,500, up from $7,000. And for IRA catch-ups (age 50+), the limit is $1,100.
2. Income-Based Phase-Outs & Saver’s Credit Adjustments
The IRS also adjusted the income ranges that determine who can deduct traditional IRA contributions, who may contribute to a Roth IRA, and who qualifies for the Saver’s Credit. For example, for singles covered by a workplace plan, the deduction phase-out begins at incomes between $81,000 and $91,000 (up from $79K–89K). For married filing jointly, many phase-out ranges similarly increased. The Saver’s Credit eligibility income ceiling for joint filers rises to $80,500.
3. New Rule for High Earners and Catch-Up Contributions
Beginning in 2026, under rules tied to the SECURE 2.0 Act, if you are age 50+ and your wages at a given employer exceed $150,000 (previously $145,000) in the prior year, your catch-up contributions may have to be made as Roth (after-tax) rather than pre-tax. This means you won’t get the immediate tax deduction, though future withdrawals may be tax-free.
Why It Matters
Even modest increases matter: every extra dollar you defer enjoys tax-advantaged growth. For example, increasing your contribution limit lets you save more pre-tax (or tax-free if Roth). But the catch-up Roth rule is especially important for high-earning older savers: if you hit the threshold, your strategy may need adjusting.
What You Should Do Now
- Check your plan’s 2026 contribution limits and update your deferral election accordingly.
- If you are age 50+ and nearing the wage threshold, ask your employer how your plan handles catch-up contributions (pre-tax vs. Roth).
- Review your IRA eligibility: are your income levels still within the new phase-out ranges?
- If you have multiple employers or engage in self-employment, check how these rules apply to you (the employer-specific wage threshold matters).
- Consider increasing your savings rate if you’re not maximizing contributions — the higher limits offer a good incentive.
Bottom Line
The 2026 changes give most savers a little more headroom to save for retirement. But high-earning older workers must pay attention to the Roth catch-up rule to avoid unexpected tax consequences. Adjust your planning now to make full use of the updated limits.
Sources:
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