Margin notes
- For 2026 the 401(k) contribution limit is $24,500 and the catch-up limit for workers 50 and older is $8,000.
- The IRA limit for 2026 is $7,500, with a $1,100 catch-up for people 50 and older.
- Roth IRA contributions phase out for 2026 between $153,000 and $168,000 for single filers and $242,000 and $252,000 for joint filers.
Retirement accounts are the most widely available tax shelter in the country. You do not need a high income or an adviser to use one; you need a paycheck and a decision about how much to put away. The tax savings come in one of two forms, now or later, and choosing between them is the main decision.
2026 contribution limits
| Account | 2026 limit | Catch-up |
|---|---|---|
| 401(k), 403(b), most 457 plans, Thrift Savings Plan | $24,500 | $8,000 at 50+; $11,250 at ages 60 to 63 |
| Traditional and Roth IRA (combined) | $7,500 | $1,100 at 50+ |
| SIMPLE IRA | $17,000 | $4,000 at 50+ in most plans |
| Defined contribution plans, total of all contributions | $72,000 |
Sources: IRS news release on 2026 limits and Notice 2025-67. The IRS notes the same combined IRA limit applies to all of your traditional and Roth IRAs together.
Traditional: tax break now
In a traditional 401(k), IRS Topic 424 explains, you elect to have part of your pay contributed on a pretax basis. Those elective deferrals are generally not subject to income tax withholding when you make them and are not reported as wages on your Form 1040. A worker in the 22% bracket who defers $5,000 lowers this year’s federal income tax by about $1,100. The money is taxed later, when you withdraw it.
Contributions to a traditional IRA may also be deductible. If you or your spouse are covered by a retirement plan at work, the deduction phases out at higher incomes. For 2026 the IRS sets the phase-out ranges at:
- $81,000 to $91,000 for single filers covered by a workplace plan.
- $129,000 to $149,000 for married couples filing jointly when the contributing spouse is covered.
- $242,000 to $252,000 when the contributor is not covered but is married to someone who is.
- If neither spouse is covered by a plan at work, the phase-outs do not apply.
Roth: tax break later
Roth contributions are made with money that has already been taxed. IRS Topic 451 is explicit: contributions to a Roth IRA are not deductible. The reward comes at the end: if you meet the requirements, qualified distributions are tax-free, the IRS says, and you can leave money in a Roth IRA for as long as you live.
Roth IRA contributions are limited by income. For 2026, the phase-out range is $153,000 to $168,000 for single filers and heads of household, and $242,000 to $252,000 for married couples filing jointly.
Traditional or Roth?
| If you expect… | Traditional tends to fit | Roth tends to fit |
|---|---|---|
| A lower tax rate in retirement than today | Yes | |
| A higher tax rate in retirement than today | Yes | |
| To need the deduction to afford saving now | Yes | |
| To want withdrawals that do not add to taxable income later | Yes |
Nobody knows future tax rates for certain, which is why many people split contributions between both types. Many 401(k) plans now offer a designated Roth option as well.
The Saver’s Credit
Low- and moderate-income workers can get a credit, not just a deduction, for retirement contributions. For 2026 the IRS sets the income limits for the Saver’s Credit at $80,500 for married couples filing jointly, $60,375 for heads of household and $40,250 for single filers and married individuals filing separately. A credit reduces tax dollar for dollar, as explained in Tax Deductions vs Tax Credits: Why a Credit Is Usually Worth More.
The cost of early withdrawals
The tax break comes with a condition: the money is meant for retirement. IRS Topic 424 says distributions from a 401(k) received before age 59 and a half are subject to an additional 10% tax unless an exception applies, on top of regular income tax for traditional money. Hardship withdrawals, which many plans allow, are still generally subject to the additional tax unless an exception applies.
Tip: If your employer matches contributions, contributing at least enough to get the full match is usually the first step. The match is money you only receive if you contribute; check your plan documents for the formula.
Why retirement accounts also cut investment taxes
Inside a 401(k) or IRA, selling one fund to buy another does not create a taxable capital gain that year. Over decades, avoiding yearly tax on gains and dividends can add up, which is part of How the Wealthy Reduce Taxes Legally, and the Versions You Can Use. Self-employed people have their own versions, such as SEP and one-participant 401(k) plans, covered in Self-Employed Tax Deductions: What Freelancers and Side Businesses Can Claim. For health costs, an HSA can work as another long-term account; see Health Savings Accounts: The 2026 Limits and the Tax Breaks.
Contributing too much has its own cost: the IRS says excess IRA contributions face a 6% tax unless you withdraw the excess, and any income it earned, by the due date of your return including extensions. Your plan administrator or a tax professional can confirm the deadlines and limits that apply to you.