IRS Boosts 401(k) Limits for 2026: Higher Contributions Ahead

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The Internal Revenue Service (IRS) has announced a boost in the annual contribution limits for workplace retirement plans, effective from 2026. According to the new guidelines, the annual contribution limit for 401(k), 403(b), and most 457 plans will increase to $24,500, up from $23,500 in 2025. This move is expected to provide a bigger opportunity for retirement savings, especially for those aged 50 and over. The catch-up contribution limit will rise to $8,000 from $7,500. Additionally, the annual limit for traditional IRAs will increase to $7,500 from $7,000, and the catch-up contribution for individuals aged 50 and over will be $1,100, up from $1,000. The IRS also raised income thresholds for the eligibility phase-out for deductible traditional IRAs, Roth IRAs, and the Saver's Credit. These changes aim to help moderate-income savers benefit from these retirement plans. Experts point out that while the increased limits provide a renewed opportunity for those who can save more, many Americans may not be able to take full advantage of these changes. According to Vanguard research, only 4 out of 10 working Americans say they are on track to maintain their current lifestyle in retirement. The IRS attributes the increase to the standard cost-of-living adjustments. While the higher limits may not be enough to encourage everyone to save more, retirement savings advisers believe it's a step in the right direction. However, it's essential to note that not all employers permit catch-up contributions, and high earners may lose traditional tax-deferral benefits under certain rules. The increased limits are part of the IRA's standard cost-of-living adjustments, aiming to help individuals shelter their income from taxes and inflation. As the retirement landscape continues to evolve, it's crucial for individuals to assess their financial goals and explore options that suit their needs.