You Can Contribute More to a 401(k) in 2026. But Should You?

There's a reason workers are encouraged to save for retirement as best as they can. If you don't retire with a decent-sized nest egg, you might have to rely on Social Security for most of your income. And that could be disastrous.

Not only does Social Security only replace a limited portion of your pre-retirement income, but benefit cuts are on the table due to the program's pending financial shortfall. It's important to have money outside of those benefits to comfortably pay your bills, and that's where your retirement savings come in.

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If you have access to an employer 401(k) plan, you may be inclined to contribute as much as you can -- especially if that workplace plan comes with an employer match. And in 2026, 401(k) limits are rising, giving you even more opportunity to save for retirement.

But just because 401(k) limits are rising in the new year doesn't mean maxing out is a wise choice. You may want to consider putting at least some of your savings into a different account.

What the new 401(k) contribution limits look like for 2026

Currently, savers under 50 are allowed to contribute up to $23,500 to a 401(k). Savers 50 and over get a $7,500 catch-up, bringing their total allowable contribution to $31,000.

In 2026, savers under 50 will be able to contribute up to $24,500 to a 401(k), while the catch-up contribution for savers 50 and over is increasing to $8,000. So older workers will be able to contribute up to $32,500 to a 401(k) plan next year.

Savers between the ages of 60 and 63 can contribute even more. That's because they get a special $11,250 catch-up, bringing their total limit for 2026 to $35,750.

Should you increase your 401(k) contributions?

While the IRS will allow you to contribute more to a 401(k) in 2026, you may not want to do that -- even if you can afford it. And one reason may boil down to the fees and limited investment choices in your 401(k).

Unlike IRAs, which allow savers to invest their money in stocks individually, 401(k)s typically limit you to a handful of funds, some of which may come with very high fees. Plus, with a 401(k) plan, you're typically looking at administrative fees on top of the fees that are associated with the investments you choose.

If you don't like your 401(k)'s investment choices, and the fees are high overall, then you may want to consider only contributing enough to that workplace account to claim your full employer match. From there, you can look at other retirement savings vehicles, like an IRA.

Another issue with 401(k)s is that you'll typically face an early withdrawal penalty of 10% for taking distributions prior to age 59 and 1/2. If you're fairly young, you may not know when exactly you want to retire. And if you save and invest well, you may end up with enough money to end your career at 57, or 54, or even 50.

That's why it's a good idea to keep a portion of your retirement savings outside of a tax-advantaged account like a 401(k) or IRA. Funds you invest in a taxable brokerage account are yours to access without restriction whenever you want to.

Don't assume you have to go all-in on your 401(k)

It can certainly pay to participate in a workplace 401(k). And if your company's plan's fees are reasonable and you're happy with the investments that are available to you, then you may want to not only participate in 2026, but max out if your financial situation allows for it.

Just recognize that funding a 401(k) for retirement isn't your only option. You may be better off splitting your money between different accounts to expand your investment choices and buy yourself more flexibility when it comes to withdrawing funds.

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