If you contribute to a retirement account through your employer or on your own, you can now save more money with tax advantages than you could last year. The Internal Revenue Service announced in November 2025 that contribution limits for several popular retirement savings vehicles would increase for 2026, giving Americans an opportunity to boost their long-term financial security.
The changes affect millions of workers across the country. For those who participate in 401(k) plans (the most common employer-sponsored retirement accounts), 403(b) plans (typically offered by schools, hospitals, and nonprofits), governmental 457 plans (available to state and local government employees), and the federal Thrift Savings Plan, the annual contribution limit has risen to $24,500. That represents a $1,000 increase from the $23,500 limit that was in place throughout 2025.
Individual Retirement Accounts, or IRAs, also saw an increase. These accounts allow people to save for retirement independently, whether or not they have access to an employer plan. The contribution limit for traditional and Roth IRAs climbed to $7,500 for 2026, up from $7,000 in 2025. This $500 increase applies to both types of IRAs, which differ mainly in when you pay taxes on the money (traditional IRAs offer tax deductions now, while Roth IRAs allow tax-free withdrawals in retirement).
For someone who can afford to maximize their 401(k) contributions, the extra $1,000 allowance translates to real money over time. Consider a 35-year-old who increases their annual contribution by $1,000 and continues doing so each year until retirement at 65. Assuming a modest 6% annual return, that additional $1,000 per year could grow to approximately $83,800 by retirement. The compound effect becomes even more powerful when you factor in employer matching contributions, which many companies offer as an incentive to encourage retirement savings.
The impact varies depending on your current savings rate. If you were already contributing the maximum $23,500 in 2025, you can now add another $1,000 without facing tax penalties. However, if you were contributing, say, $10,000 per year, the new limit does not require you to increase your contributions. It simply provides additional room to save more if your budget allows. Many financial advisors suggest aiming to save at least 10% to 15% of gross income for retirement, though individual circumstances vary widely based on factors like age, existing savings, and retirement goals.
The IRA increase, while smaller at $500, still matters for people who rely on these accounts as their primary retirement savings vehicle. Someone in the 22% tax bracket who contributes the full $7,500 to a traditional IRA could reduce their taxable income by that amount, potentially saving $1,650 in federal taxes for the year. Alternatively, contributing to a Roth IRA means paying taxes now but enjoying tax-free growth and withdrawals later, which can be advantageous for younger workers who expect to be in a higher tax bracket during retirement.
These annual adjustments reflect the IRS’s efforts to account for inflation and rising living costs. The agency periodically reviews and updates contribution limits to help Americans maintain their purchasing power in retirement. Without these increases, the real value of contribution limits would erode over time as prices rise. The adjustment process considers various economic indicators, including cost-of-living data that affects everything from housing to healthcare expenses.
For workers who have not yet started saving for retirement or who contribute only modest amounts, the new limits serve as a reminder to reassess financial priorities. Even small increases in contributions can compound significantly over decades. Someone who increases their biweekly 401(k) contribution by just $40 (about $1,000 annually) might barely notice the difference in their paycheck, especially since the contribution reduces taxable income, but the long-term benefit can be substantial.
People aged 50 and older can contribute even more through catch-up contributions, which allow older workers to accelerate their savings as retirement approaches. These catch-up provisions remain separate from the standard limits and provide another avenue for increasing retirement security. The combination of higher base limits and catch-up contributions gives Americans more flexibility to prepare for their post-working years, whether retirement is decades away or just around the corner.
