The end of 2026 is almost here. That makes now a good time to look at your 401(k). Putting more money into your 401(k) can lower the taxes you owe as well as help you build a bigger retirement fund. If you haven’t been contributing, it’s not too late to start, and if you’re already contributing, adding a little more from each paycheck before the year is over could help you get even more out of your plan.
How a 401(k) works
A 401(k) is a retirement savings account that an employer usually sets up for you, and you choose how much you want to save. You can pick a set dollar amount or a percentage of your pay. That money is then taken out of each paycheck and put into your account. These savings you contribute are called “elective deferrals.”
In most cases, the money comes out of your paycheck before federal income tax is figured (this is considered “pre-tax”). This makes it so that you are reporting less earnings to the IRS and thus paying less income tax. It is important to note though that these elective deferrals are still subject to Social Security and Medicare taxes.
While your money sits in your 401(k), it accumulates interest without being taxed each year. This is what’s known as “tax-deferred” growth. Over many years, this can make a big difference, because your earnings keep building on top of earlier earnings. The catch is that when you take money out later in life, you will pay income tax on it then. For many people, that’s a good trade since most earn less once we stop working. This often puts individuals in a lower tax bracket in retirement, meaning the money contributed now may end up being taxed at a lower rate than it would have been today.
Roth 401(k) options
Some employers also offer a Roth 401(k), which works the other way around. With Roth savings, you pay income tax on the money now, then later, when you take the money out in retirement, both what you put in and what it earned in interest can come out tax-free.
While the Roth 401(k) option does not lower your tax bill in the current year, it will give you a tax break later in life.
Employer matching
Many employers will add money to your account as you save. This is called a “match.” For example, an employer might put in 50 cents for every dollar you save, up to a certain amount. Employers do not have to offer a match, but many do.
From time to time, it is smart to look at the various 401(k) investment plans that your employer offers. Ask yourself: Do these investments still fit my retirement goals? And am I comfortable with how much risk they carry? The end of the year is a good time to check on your investment and ask yourself these questions.
Contribution limits for 2026
The IRS sets a yearly cap on how much you can contribute towards your 401(k). This cap includes the regular pretax contributions and the Roth post-tax contributions combined. Here are the 2026 limits:
- Under age 50: up to $24,500.
- Age 50 or older: you may be able to add an extra $8,000, called a “catch-up” contribution, if your plan allows it. That brings your total to $32,500.
- Age 60 through 63 at year end: the extra amount rises to $11,250, for a total of $35,750.
These limits apply to all your 401(k) plans combined. So, if you worked for two employers this year, your savings in both plans count toward the same cap.
There is also a limit on the total amount that can go into a 401(k) account in one year. This limit includes the money you contribute from your paychecks, any employer matches and any extra after-tax contributions your plan allows. For 2026, all of this added together can’t be more than $72,000. It also can’t be more than what you were paid for the year. If you work for two unrelated employers, each plan has its own $72,000 limit, but the $24,500 limit on your overall contributions is shared.
New rule for higher earners age 50 and up
Starting in 2026, there is a new rule for catch-up contributions. If you earned more than $150,000 in 2025 from the employer that sponsors your plan, your catch-up contribution must go in your 401(k) as Roth savings. The wages counted for this test are the Social Security wages shown in Box 3 of your Form W-2, with each employer’s W-2 being tested for the $150,000 on its own. The limit is to be adjusted annually for inflation.
If your employer doesn’t offer a Roth option, then you can’t make catch-up contributions.
How to save before the year ends
For 2026, your contributions must come out of your paychecks by December 31. With a few exceptions, you generally cannot make up for it after the year ends. If you have not reached your limit on savings and want to set aside more from your last few paychecks, talk to your employer or HR department soon. Payroll processing deadlines may limit how late you can make changes, so don’t wait too long or you could miss your chance.
If your employer offers a match, try to contribute at least enough to get a full match. Check how much you have deferred so far this year and check whether you are on track to get the full match. If you aren’t, you are leaving free money on the table.
It also helps to understand how your employer figures the match. Some employers match each paycheck’s contribution. Others wait until the end of the year and make an adjustment then. Depending on how your plan works, the timing of your contributions during the year could change how much of a match you receive. For example, if your plan matches paycheck by paycheck and you reach the yearly limit early, you could miss out on match money for the rest of the year.
Saving more can still help
Putting in more pretax money does more than lower your taxable income; it also lowers your “adjusted gross income,” or AGI. Your AGI matters because many tax breaks shrink or disappear when your AGI gets too high, and some extra taxes begin applying above certain income levels. Lowering your AGI can help you stay under those limits.
If you’re less concerned about this year’s taxes and care more about having tax-free income in retirement, consider contributing to your Roth 401(k) instead. This can be a very good choice if you earn too much to put money into an individual Roth IRA. A Roth 401(k) is not limited by your income, so it gives higher earners a way to build tax-free retirement savings.
Money in a 401(k) is meant for retirement, so it is not very easily accessible. Once you put money in, you generally can’t take it out whenever you want. Only a few cases permit you to withdraw money before age 59½. Even then, you will usually pay a penalty in addition to any income tax owed on the distribution. So, before you make your contributions, make sure you still have enough cash on hand for everyday bills and emergencies.
Don’t wait
Only a few paychecks are left in 2026. You may still have time to put more money towards your 401(k) and either cut your 2026 tax bill or build tax-free income for retirement. Check with your employer about deadlines and your options soon. Please contact your Wegner tax advisor if you need help determining how saving more would affect your taxes and decide whether it makes sense for you.
