Big Changes Are Coming to 401(k) Contribution Limits. Here’s What to Know.

On November 13, the Internal Revenue Service (IRS) announced some sweeping changes to contribution limits for 401(k) savers who may be part of the investor cohort who are willing and able to maximize these retirement accounts.

These changes alter the game significantly for those investing for retirement. Whether you’re on the younger end of the investing journey, or someone approaching retirement, there’s something in these list of announced changes for everyone.

These annual increases tend to take place to reflect the cost of living increases we see year to year. Similar to the cost of living adjustment (COLA) seniors see for their social security payments, these annual IRS increases to the contribution limits (the maximum savers can put in their 401(k) or comparable retirement accounts).

So, What Changed?

The annual contribution limit for employees participating in 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan will rise to $24,500 in 2026, up from $23,500 for 2025.

This is a notable increase, with investors now able to put another $1,000 per year pre-tax in these accounts, and garner the taxable deduction for FY26 for their taxes which will be reported in 2027.

For those who find themselves on the higher end of the income spectrum, the tax breaks one receives from investing in these plans can be material. And even for those investors who are starting out, a smaller tax break (but a longer time horizon to grow their retirement portfolios) can mean big upside for those looking to save for a big and beautiful retirement.

I’m of the view that starting early makes the most sense, but everyone ought to strive to have a least a little bit of a bigger cushion than what the social security administration will provide when it comes time to retire. And with more and more emphasis on the social security trust fund running out of money in the years to come, I think there will be increased attention paid to investing in these plans and not having to rely on the government when one retires.

Changes for Older Investors Nearing Retirement

For those in the 50+ age bracket, the IRS also announced some notable changes worth pointing out.

The catch-up contribution limit for individuals aged 50 and older will rise to $8,000 in 2026 (up from $7,500 in 2025) for most workplace plans, enabling older workers to contribute up to $32,500 in their 401(k), 403(b), or governmental 457 plans that year. This means that those who are nearing retirement have the ability to invest up to $32,500 in their retirement accounts and shelter this income from taxes.

Indeed, most of us will reach our prime earning years sometime in our late-40s or early-50s. As such, this can be a crucial time to save and invest for retirement, particularly since we’ll have the income to do so at this age (generally speaking).

At a 24% tax bracket (where many such individuals may find themselves at this stage of life), sheltering $32,500 from taxation can result in a refund (holding all else equal on one’s return) of $7,800. That’s a decent chunk of change one can use to put into their 401(k) for the coming year, or add to another retirement savings plan as one wishes.