2026 401(k) contribution limits feel like a huge sum right now

The maximum employee 401(k) contribution limit will increase by $1,000 to $24,500 in 2026, according to the IRS. For workers over 50, the back contribution increases to $8,000, bringing the total to $32,500. This is a huge amount of money that is deposited into a tax-advantaged account each year.

When I first started working in 1999, the employee 401(k) limit was only $10,000. Even though my first-year base salary was only $40,000, I still contributed about $3,000. Then, when I got a raise in 2000 to $55,000, the limit was still only $10,500, so I raised it to the maximum.

I worked my butt off until I left my job in 2012 and walked away with about $300,000 in my 401(k). My returns were mediocre, largely due to the dot-com bubble bursting in 2000 and the global financial crisis of 2008-2009. However, $300,000 at age 34 still feels like a meaningful financial foundation.

Along the way, I built a small rental property portfolio, accumulated CDs, and invested in a taxable brokerage account. With these sources of income, I felt comfortable quitting my job, especially after I negotiated a severance package.

I’ve always thought of my 401(k) as a “bonus.” I went to great lengths to reduce my taxable income and forced myself to live within my means. It would be great if I could get this money after I turn 60. But like Social Security, I never counted on it. Relying on the government to live your life is not a good strategy.

2026 401(k) Employer Contributions Matter

I’m very excited about the $24,500 employee limit increase. But when you include employer matching and profit sharing, the total amount that can be rolled into a 401(k) in 2026 can be up to $72,000 (or $80,000 if you’re 50 or older). In other words, your employer can contribute up to $47,500. This is important!

So if your employer only offers a $3,000 match for a $3,000 contribution of your own, know that they Can They would contribute more if they wanted to (and if the company was profitable). The ceiling is much higher than most employees realize.

For those of you brave enough to spend years working at a startup, remember: You could be giving up hundreds of thousands of dollars in easy money through employer 401(k) contributions. So factor this into your calculations when deciding whether to make over $500,000 working 35 hours a week at Google or $160,000 working 70 hours a week at a startup. Big Tech — or any large, established company — may quietly put more than $10,000 a year into your 401(k) just to show up.

During my last three years at Credit Suisse, as a director (VP level above), I received employer profit sharing contributions of $15,000 to $20,000 per year from the 401(k) plan. Credit Suisse isn’t even as profitable as many big banks or big tech companies. In fact, Credit Suisse is being swallowed up in 2023 because it is on the verge of bankruptcy, 11 years after I left.

If you have more than 13 years of experience, your employer can definitely do better!

Contributing up to your 401(k) employee amount will make you a millionaire

With the $24,500 new hire limit, I believe anyone who consistently hits the 401(k) cap will be a 401(k) millionaire within 20 years. The table below shows future 401(k) values ​​10, 15, 20, 25 and 30 years after maximum contributions (using return assumptions of 5%, 7%, 10% and 15%).

After getting my Empower financial review, I decided to do an in-depth calculation of my historical 401(k) performance. Despite only contributing for 13 years and a compound annual return of less than 4%, when I left my job in 2012, my balance still grew to about $300,000. I haven’t touched it since.

To my delight, just 13 years later, the same $300,000 snowballed to nearly $1.6 million, with zero additional donations. That’s the power of compound interest when markets finally cooperate. I’m all invested in stocks, mostly tech stocks, because I view my 401(k) plan as a bonus.

Here’s the thing: If I continued working and maxed out my 401(k) from 2012 to 2025, and used the same CAGR. Today my 401(k) balance is approximately $2,554,000. Hell, another $1 million would be just fine. I could sit back, stare at the funny money on the screen, and dream harder about a life as a free man.

But an extra million would also buy me an extra 13 years of about 50 hour work weeks, office politics, morning alarm clocks, non-stop travel every two weeks and constant stress. Considering my standard of living since 2012, the trade-off is still worth it.

Maximize your 401(k) every year

If you have a job and have access to a 401(k), maximize it each year. If not for your own retirement future, then for me! Today, fewer and fewer people enjoy workplace retirement benefits, let alone employer matches. If you already have it, don’t waste it.

At this point in my life, if I want to contribute to a tax-advantaged 401(k) again, I basically need to go back to corporate consulting, do more private personal financial consulting, teach tennis, or drive for Uber. Even so, I Won’t Be entitled to an employer match. In contrast, many workers today are very lucky.

Now that I’m 48, it won’t be long before I can access my 401(k) and rollover IRA without penalty. While I still view these accounts as bonuses, the balance is large enough to fund a comfortable middle-class lifestyle in 59.5 years. At a 5% withdrawal rate, plus about 70% of the estimated Social Security benefit starting at age 62, I would expect a total annual income of over $110,000 in today’s dollars.

If you want to fire, set up your taxable account

If you want to lay off, simply contributing to an IRA or 401(k) isn’t enough. In 2026, the IRA contribution limit rises to $7,500, or $8,600 if you are 50 or older. Helpful, but not life-changing.

As you accumulate seven figures in your 401(k), you must also prioritize building your taxable investment portfolio. Here’s a portfolio that generates passive income, you can actually use Before age 59.5. Without it, early retirement becomes more stressful and significantly less free.

If you don’t build a large enough taxable investment portfolio or rental property portfolio, you may find yourself scrambling for income after leaving your day job.

• You might end up starting a FIRE podcast and asking for donations during COVID-19.
• You may be forcing your spouse to continue working for years, even though you have two young children and she desperately wants a break.
• Or, on the other hand, you might refrain from having children at all—even if you want children—because you feel financially strapped.

The lesson is simple: Don’t rely on your 401(k) or the government to do anything. If you want to maximize your lifestyle before age 59.5, you must actively fund your taxable investments.

Once you reach 59½, you can withdraw from your 401(k) without penalty. But remember, this is tax deferred. Each withdrawal is taxed at ordinary income rates.

The larger your 401(k), the more strategic you need to be with your withdrawals. That’s why contributing to a Roth IRA when possible, or doing a backdoor Roth IRA during low-income years, is still a smart financial move.

How to Consistently Maximize Your 401(k)

Here are some practical, realistic ways to ensure you meet your employee quota each year:

1. Automate your contributions

Set your contribution rate so that the maximum is automatically reached, ideally starting in January. Once it’s deducted from your paycheck, you can’t miss it. Hedonic adaptation works both ways. You’re not really sacrificing because the freedom you gain on the back end is worth more than any material thing you can buy today.

2. Every salary increase increases contribution

If you get a 3-5% raise, transfer at least 1-2% of it to your 401(k). You’ll maintain your lifestyle while increasing your savings rate. Remember: If the money you’re saving each month doesn’t hurt, you’re not saving enough!

3. Use bonuses strategically

If your employer allows a percentage withholding on bonuses, increase that percentage. Even a single bonus can get you up to half the maximum.

4. Keep investing simple.

For 95% of workers, an index target date fund, an S&P 500 index fund, or a total market index fund will suffice. Low fees -> Higher returns -> Bigger savings. Your contribution is most important during the first 10-15 years. However, once your 401(k) reaches around $250,000, you’ll start to see returns on your investments for longer than you can contribute.

5. Understand your employer matching formula

Many employees miss out on free money simply because contributions are uneven throughout the year. It would be great if your plan had a “true” match. If not, make sure your contributions are stable enough to capture a match every pay period.

If you can’t meet the 401(k) maximum each year, you’d better contribute at least the maximum 401(k) employer match. Never give up free money!

The last word: Your future self will thank you

A 401(k) is one of the most powerful wealth-building tools available to everyday workers. Tax benefits, automation, employer matching, and long-term horizons create the perfect recipe for millionaire status, often faster than most people expect.

I’ve lived in both:

• The “maximizing every year” aspect
• And the side of “stop contributing and watch it grow”

If you can afford to take full advantage of your 401(k), do it. You will never regret it in the future.

Combine a fully funded 401(k) with a steadily growing taxable investment portfolio, and you’ll achieve true financial independence decades earlier than planned.

Readers, what do you think about the maximum 401(k) contribution levels for employees and employers in 2026? Doesn’t the amount feel astonishingly large now? What’s stopping you or others from maxing out your 401(k) contributions each year? Have you achieved 401(k) millionaire status? If so, how long does it take to get there?

Take control of your finances like an eagle

If you really want to maximize your 401(k) and build real wealth, staying organized is half the battle. One tool that I continue to rely on is Empower’s free financial dashboardI’ve been using it since I quit my day job in 2012. It remains part of my regular routine for tracking net worth, investment performance, and cash flow.

My favorite feature is the Portfolio Fee Analyzer. A few years ago, it was revealed that I was paying about $1,200 a year in hidden investment fees that I didn’t know I was paying. Money stays in my pocket now, compounding for my future instead of someone else’s.

If you haven’t reviewed your investments in the past 6-12 months, now is the perfect time, especially if you are thinking more strategically about your pension contributions for 2026 and beyond. You can do a DIY inspection or get Free financial analysis Through empowerment. Either way, you’ll likely discover insights about your allocations, risk exposures, and investing habits that could lead to better long-term performance.

As always, stay proactive. A little optimization today can translate into greater financial freedom later.

This statement is provided to you by Financial Samurai (the “Sponsor”), who has entered into a written recommendation agreement with Empower Advisory Group, LLC (“EAG”). Click here to learn more.