It's that time of year again when many of us start thinking about our retirement savings, and specifically, how much we can actually put into our 401(k) plans. The Internal Revenue Service (IRS) usually gives us a heads-up each fall about any adjustments to these contribution limits, and this year is no different as we look ahead to 2025 and 2026.
For starters, if you're under 50, you'll be pleased to know that the basic employee contribution limit is nudging up. For 2025, you can contribute up to $23,500. Then, for 2026, that limit increases to $24,500. That's an extra $1,000 you can potentially sock away next year, which, over time, can really add up.
Now, for those of us who are 50 or older, there's a special perk: the catch-up contribution. This is designed to help folks who might be a bit behind on their retirement savings get a little extra boost. In 2025, you can make an additional catch-up contribution of $7,500. Come 2026, this catch-up amount gets a boost too, rising to $8,000. So, for 2026, someone 50 or over could contribute a grand total of $32,500 ($24,500 basic + $8,000 catch-up).
It's important to remember that these limits apply to all your elective salary deferrals, whether you're contributing to a traditional 401(k) or a Roth 401(k) within the same plan. If you happen to have multiple 401(k) accounts from different employers (which is less common but possible), your total contributions across all of them can't exceed these limits. And good news for those who also contribute to IRAs: contributions to most IRAs (except for SIMPLE IRAs) don't impact your 401(k) limit.
Beyond what you contribute, your employer can also play a role. Many employers offer matching contributions, which is essentially free money for your retirement. They can also make their own contributions, up to certain limits. When you combine both employee and employer contributions, the total limit for 2026 is $72,000. If you're taking advantage of the catch-up contribution, that total can go up to $80,000. For 2025, the combined limit was $70,000.
There's also an option for after-tax contributions if your company offers it and you've maxed out your other contributions and still have funds to save. This allows for even higher total contributions, with the combined limit (including employee deferrals, after-tax contributions, and employer matches) reaching $72,000 in 2026, and $80,000 if you're 50 or older.
For those earning a higher salary, it's worth noting that there are tests, like the Actual Deferral Percentage (ADP) test, to ensure that plans benefit employees across all compensation levels. If non-highly compensated employees don't participate much, highly compensated employees might face restrictions on their contribution amounts.
It's always a good idea to keep an eye on your contributions throughout the year and especially at year-end. If you accidentally contribute more than the annual limit, the IRS requires that excess amount to be returned to you by April 15th of the following year. Staying informed about these limits helps you make the most of your retirement savings strategy.
