401(k) catch-up limits rise to $11,250 for pre-retirees

Workers within four years of retirement face their highest-stakes savings window, with 2026 catch-up limits allowing savers aged 60 to 63 to contribute up to $35,750 to a 401(k).

Charles Schwab's published guidance recommends a 60 percent stock, 35 percent bond, and 5 percent cash allocation for investors in their 60s, the firm said, reflecting the need to reduce exposure to market swings that could permanently damage retirement income.

The IRS announced the 2026 limits on Nov. 13, 2025, raising the standard 401(k) contribution cap to $24,500 from $23,500. Workers aged 50 and older can add $8,000 in catch-up contributions for a total of $32,500, while those aged 60 to 63 qualify for an $11,250 super catch-up under SECURE 2.0, bringing their ceiling to $35,750. IRA contribution limits also rose to $7,500 from $7,000, with the catch-up allowance for savers aged 50 and older increasing to $1,100.

The stakes are material. Average retirement account balances reached $167,970 in 2025, and a bear market in the first years of retirement can erode decades of accumulated savings. With Social Security averaging $2,080 per month in 2026, workers who fail to adjust their asset allocation or maximize catch-up contributions risk outliving their savings during a period when earned income is no longer available to rebuild.

Shifting to a Defensive Posture

The four-year window before retirement is when asset allocation decisions carry the most weight. Younger investors can afford aggressive portfolios because they have time to recover from market losses, but workers approaching retirement face sequence-of-returns risk — the danger that a market decline early in retirement permanently reduces the income their portfolio can generate.

Charles Schwab recommends the bucket strategy for this transition. Workers build one to three years of living expenses in cash or a conservative account such as a high-yield savings account, providing a buffer so they do not need to sell 401(k) assets during a downturn. This approach ensures that the first years of retirement — which set the tone for the entire withdrawal strategy — are not forced into selling at depressed prices.

Target date funds offer an automated alternative, adjusting risk tolerance over time through a glide path. However, these funds may not align with every worker's timeline, and investors should evaluate whether the default glide path matches their specific retirement date and income needs.

Catch-Up Contributions and the Roth Mandate

For workers aged 50 and older, catch-up contributions provide a critical tool to accelerate savings during peak earning years. The standard $8,000 catch-up allowance on top of the $24,500 base limit means workers aged 50 and older can defer up to $32,500 annually. Those aged 60 to 63 gain an additional $11,250 super catch-up, recognizing that workers in their early 60s are often at their highest earning potential.

High earners face a new constraint. Workers earning more than $150,000 annually must make catch-up contributions to a Roth 401(k) rather than a traditional pre-tax account. This eliminates the immediate tax deduction that high earners previously received on catch-up amounts, though Roth withdrawals in retirement are tax-free if specific qualifications are met.

Beyond contribution limits, workers should also address high-interest debt before retirement. Credit card balances and other expensive debt reduce the cash flow available for retirement savings, and paying down these obligations in the final working years frees up income for investment.

A financial planner can help workers evaluate whether their current savings will support their desired retirement lifestyle, model different withdrawal strategies, and assess tax obligations across traditional and Roth accounts. Contribution limits and eligibility rules are subject to change; readers should verify the latest figures against the IRS's official 2026 guidance (Notice 2025-67) before making decisions.

This article is for informational purposes only and does not constitute professional advice.