401(k) Overview: 2026 Update

Investing in a 401(k) plan is the most simple and effective way to grow your nest egg. Most companies offer 401(k) plans to their employees. If your employer matches contributions, set a goal to contribute at least up to your employer's maximum match, generally 6% of your compensation.

If your employer doesn't match, 401(k) plans are still a great way to get tax benefits with each paycheck deferral and gain access to a wide variety of investment options. One exception — if your employer doesn't match, and you plan to contribute less than $7,500, an IRA may be the better choice. Check out the IRA section here.

Contribution Limits

Start with 6% of your salary. If you can afford more, do it, especially if your company offers an employer match. If you can't afford 6%, start with $50 or $100 per month — whatever you can.

The IRS increased the maximum employee 401(k) contribution limit to $24,500 for 2026, up from $23,500 in 2025.

Catch-up contributions also went up:

Age 50+: an extra $8,000, for a total of $32,500

Age 60–63 ("super catch-up"): an extra $11,250 instead of the standard catch-up, for a total of $35,750 (if your plan allows it)

New rule for high earners in 2026: if your FICA wages exceeded $150,000 in the prior year, your catch-up contributions must now be made as Roth (after-tax) contributions rather than pre-tax. Check with your plan administrator to see if your plan offers a Roth option — if it doesn't yet, you may not be able to make catch-up contributions until it does.

The combined employee + employer contribution limit (the "415(c) limit") is now $72,000 for 2026, up from $70,000.

Traditional vs Roth

The biggest difference between a Roth and a traditional 401(k) is how and when you get a tax break: with a traditional 401(k), your contributions are tax-deductible in the year they're made. With a Roth 401(k), your withdrawals in retirement aren't taxed.

Tough call. If you're just starting your career or in a lower tax bracket, lean Roth to get tax-free compounding growth. Otherwise, a traditional account or a mix of both works well.

Investment Choices

Generally, plans offer a full range of stocks, bonds, ETFs, and mutual funds — small cap to large cap, domestic vs. international, and low-fee index funds. Unless you plan to monitor your investments daily, your best option is a target-date fund or a broad-market ETF like VTI or VOO.

Source: IRS Notice 2025-67