IRS raises 2026 401(k) cap to $24,500, reshaping savings order

The IRS raised 2026 contribution limits across retirement accounts, giving savers more room to follow a funding hierarchy that prioritizes employer-matched 401(k) dollars before any other vehicle. The 401(k) cap rose to $24,500 from $23,500, while the IRA limit increased to $7,500 from $7,000, according to the IRS announcement on Nov. 13, 2025.

"Even a lackluster match — say, 25 cents per dollar — is hard to beat by investing outside the plan," said Christine Benz, director of personal finance and retirement planning at Morningstar. "It comes on top of any investment earnings."

Workers 50 and older can contribute up to $32,500 to a 401(k) including the $8,000 catch-up, and those aged 60 to 63 gain an additional $11,250 super catch-up under the SECURE 2.0 Act of 2022. IRA catch-up contributions for those 50 and older rose to $1,100, bringing the total IRA limit for that group to $8,600. SIMPLE plan limits increased to $17,000 from $16,500.

The higher limits arrive as average retirement balances hit a record $167,970 in 2025, according to Fidelity data. For savers deciding where to direct a fixed monthly or annual sum, the account-order framework provides a starting point: fund the 401(k) up to the employer match first, then move to an IRA or spousal IRA, then additional company-plan contributions, an HSA if eligible, after-tax 401(k) conversions, and finally taxable accounts.

The Employer Match Is Free Money

The match is the only step in the hierarchy that delivers an immediate return before any investment gains. Even a modest match of 25 cents per dollar produces a 25 percent instant return on that portion of contributions. Savers whose 401(k) plans offer no matching contributions can skip this step and proceed directly to an IRA.

IRAs typically offer lower administrative fees than workplace plans, a wider array of securities, and a Roth option. But a 401(k) with ultralow costs, no administrative expenses, and a Roth feature can justify full funding before moving to an IRA. For married couples with a nonearning spouse, a spousal IRA should come next if the earning spouse has enough income to cover both contributions.

Tax-Sheltered Accounts Before Taxable

Higher-income investors should generally exhaust all tax-sheltered retirement options before investing in nonretirement accounts, even if their workplace plan is not best of breed. Traditional 401(k) contributions are pretax, compound tax-deferred, and reduce adjusted gross income, which can increase eligibility for credits and deductions. Roth 401(k)s offer tax-free compounding and withdrawals in retirement.

HSAs occupy a unique position in the hierarchy for those covered by a high-deductible health plan. Contributions are pretax, funds grow tax-deferred, and qualified withdrawals for healthcare expenses are tax-free. When invested and left to compound until retirement, HSAs function as a retirement savings vehicle.

Savers who have maxed out regular 401(k) contributions can contribute up to $72,000 total in 2026 if their plan allows after-tax contributions, then convert those funds to Roth inside the plan or through in-service distributions. This strategy becomes less attractive with a poor or costly 401(k).

Taxable accounts sit at the bottom of the hierarchy for most savers. They offer maximum flexibility — no withdrawal requirements, access to nearly any investment — but contributions are after-tax and gains face capital gains taxes upon sale. Taxable accounts make sense for those who already hold substantial assets in tax-deferred and Roth accounts, expect to need money before retirement, or anticipate a zero percent capital gains bracket at withdrawal.

The framework is not one-size-fits-all. Proximity to retirement, plan quality, and expected future tax brackets all shift the optimal order. Contribution limits are adjusted annually for cost-of-living changes, so savers should verify current figures against the latest IRS guidance before making decisions.

This content is for informational reference only and does not constitute professional advice.