401(k) Basics for 2026: Limits, Employer Match, Roth vs Traditional

The short answer

A 401(k) is a workplace retirement account. You choose a percentage of each paycheck to contribute, your employer often adds a match, and the money is invested until retirement. For 2026 you can defer up to $24,500 of salary, plus $8,000 in catch-up contributions from age 50 — or $11,250 at ages 60 to 63. Contributions can be traditional (tax break now, taxed later) or Roth (taxed now, tax-free later).

The single most important rule: contribute at least enough to get the full employer match. It is an immediate 50–100% return on that money. Our 401(k) calculator shows how much your balance could grow and whether you are leaving match on the table.

2026 contribution limits

Limit	2026 amount
Employee elective deferrals	$24,500
Catch-up, age 50–59 and 64+	$8,000 (total $32,500)
Catch-up, age 60–63	$11,250 (total $35,750)
Total of employee + employer contributions	$72,000 (plus catch-up)
Roth catch-up wage threshold	$150,000 of prior-year FICA wages

The employee limit applies across every 401(k), 403(b) and similar plan you have in a year, so two jobs in one year share one $24,500 limit. The $72,000 total limit applies per employer and includes the match and any profit-sharing contributions.

How employer matching works

A match is expressed as a percentage of what you contribute, up to a cap measured as a percentage of your pay. Three common formulas, with the match you would receive by contributing enough to collect all of it:

Salary	50% of the first 6%	100% of the first 4%	100% of the first 3% + 50% of the next 2%
$60,000	$1,800	$2,400	$2,400
$80,000	$2,400	$3,200	$3,200
$120,000	$3,600	$4,800	$4,800

To collect the whole match under the first formula you must contribute 6% of pay; under the second, 4%; under the third (a common "safe harbor" design), 5%. Contributing less than the cap leaves free money behind. If you contribute so much that you hit the $24,500 limit early in the year, check whether your plan "trues up" the match — otherwise you can miss matching contributions in the months after you stop contributing.

How much it can grow

Balance at 65 for someone earning $60,000, with raises of 3% a year, a 50% match on the first 6% and a 7% annual return, starting from $0:

Start at	Contribute 6% (+3% match)	Contribute 10% (+3% match)
25	$1,636,518	$2,363,859
35	$724,473	$1,046,461
45	$288,333	$416,481

These are future dollars before tax, and returns will not be smooth, but the pattern is clear: starting early matters more than contributing a lot later. Ten years' delay roughly halves the result.

Traditional vs Roth

Traditional contributions come out of your pay before federal income tax (and before state tax in most states), so a $100 contribution costs less than $100 of take-home pay. Withdrawals in retirement are taxed as ordinary income. Roth contributions are made after tax, but qualified withdrawals — after age 59½ and at least five years after your first Roth contribution — are completely tax-free, including the growth.

• Choose traditional if you expect a lower tax rate in retirement than now, or need the lower take-home cost today.
• Choose Roth if you are early in your career or in a low bracket now, or want tax-free income later.
• Many people split contributions between the two to hedge.

Employer matches have traditionally gone into the pre-tax account; since 2023 plans may let you take the match as Roth, in which case it is taxable to you in the year it is made. From 2026, if your FICA wages from your employer exceeded $150,000 last year, any catch-up contributions you make must be Roth.

Vesting

Your own contributions are always 100% yours. Employer contributions may vest over time — for example 20% a year over five years ("graded") or all at once after three years ("cliff"). If you leave before you are fully vested, you forfeit the unvested part of the match. Check your plan's summary plan description before deciding when to change jobs.

Getting money out

• Normal withdrawals start from age 59½ without the 10% additional tax. Traditional withdrawals are taxed as income.
• Early withdrawals before 59½ usually cost income tax plus a 10% additional tax. Exceptions include leaving your employer in or after the year you turn 55, disability, and certain medical expenses.
• Loans: many plans let you borrow up to half your vested balance (maximum $50,000) and repay it through payroll. If you leave your job, the outstanding balance may become due.
• Required minimum distributions from traditional accounts start at age 73 for most people today. Roth 401(k) accounts no longer require distributions during the owner's lifetime.

Changing jobs

When you leave an employer you can usually:

1. Leave the money in the old plan (often allowed for balances above $7,000).
2. Roll it into your new employer's plan, keeping everything in one place.
3. Roll it into an IRA, which typically offers more investment choice.
4. Cash it out — taxable, usually with the 10% additional tax if you are under 59½, and the money stops growing for retirement.

Ask for a direct rollover so no tax is withheld. With an indirect rollover the plan withholds 20%, and you must make up that amount from other savings within 60 days to avoid tax on it.

401(k) vs IRA

An IRA is a retirement account you open yourself, separate from any employer. You can have both.

	401(k)	Traditional or Roth IRA
2026 contribution limit	$24,500 (+ catch-up)	$7,500 (+ $1,100 catch-up from age 50)
Employer match	Often	Never
Investment choice	The plan's menu	Almost any fund, ETF or stock at your broker
Tax deduction (traditional)	Always, through payroll	May be limited if you or your spouse have a workplace plan and higher income
Roth eligibility	Any income	Phases out at higher incomes

A common order of priority: contribute to the 401(k) up to the full match, then fund an IRA (often a Roth IRA if you qualify), then go back to the 401(k) up to the limit.

Fees and investment choices

Fees compound just like returns. A fund charging 1% a year instead of 0.1% can cost a six-figure sum over a 40-year career on a balance like the ones in the table above. Check each fund's expense ratio in your plan's fee disclosure and favour low-cost index or target-date funds where they are offered. A target-date fund — named for the year you expect to retire — automatically shifts from stocks towards bonds as that date approaches, which suits people who do not want to manage their own mix.

Common mistakes

• Contributing below the match cap and leaving free money unclaimed.
• Never increasing the contribution rate after the default chosen at enrolment.
• Leaving everything in a cash or stable-value fund for decades.
• Cashing out when changing jobs instead of rolling over.
• Taking a 401(k) loan and then leaving the job before it is repaid.
• Forgetting old accounts — keep a list of every plan and consolidate where sensible.

Automatic enrolment

Many plans now enrol new employees automatically, often at 3% to 6% of pay, and some raise the rate by 1 point each year. Under SECURE 2.0, most plans established after 2022 must auto-enroll new employees from 2025 onwards. You can change or opt out of the default, but check that the default rate collects your full match — many do not.

If your employer has no 401(k)

Not every job comes with a plan. Without one, you can still save in a traditional or Roth IRA up to the IRA limit. If you also do freelance or contract work, a Solo 401(k) or SEP IRA lets you shelter part of that self-employment income — see our guide to W-2 vs 1099 taxes for the contribution rules.

How a 401(k) shows on your paycheck

A traditional contribution reduces the wages subject to federal income tax but not Social Security and Medicare, so your take-home pay falls by less than the amount you save. The paycheck calculator shows the effect for your state and filing status, and the salary and hourly tables show take-home pay for every common salary before 401(k) contributions.

Checklist

• Contribute at least enough to get the full match.
• Raise your percentage by 1 point each year or with every raise until you reach 10–15% including the match.
• Pick traditional, Roth or a split deliberately.
• Choose a diversified, low-cost investment such as a target-date fund if you do not want to manage it yourself.
• Check your vesting schedule before changing jobs.
• Roll old 401(k)s over directly rather than cashing out.