2026 401(k) Contribution Limit Changes: How High Earners Can Look Beyond the 401(k) to Build Tax-Efficient Wealth

Major changes have arrived for retirement savers in 2026. The IRS has raised 401(k) contribution limits to $24,500 for employee deferrals, $8,000 for catch-up contributions at age 50+, and introduced a new super catch-up of $11,250 for those ages 60 to 63. Reaching these numbers is a laudable goal and an impressive milestone. Yet it's uncommon: only 14% of participants hit the maximum, according to Vanguard's How America Saves 2025 report.

For high-income earners, the story is different. Nearly 49% of top-tier earners max out their plans. With the new 2026 limits, the question for high-income earners becomes whether increasing contributions to the workplace plan is the best move, or whether other investment options could deliver greater tax efficiency and flexibility. While a 401(k) can serve as the cornerstone of retirement savings, it also has limitations, and additional dollars may be better deployed elsewhere.

If you're approaching these new limits, this is the right time to revisit your retirement strategy holistically. In the sections that follow, we'll outline key considerations to ensure your savings decisions align with your bigger financial picture.

What Changes in 2026

The IRS has announced significant updates to 401(k) contribution limits for 2026:

• Employee deferrals: Up to $24,500
• Catch-up contributions (age 50+): $8,000
• Super catch-up (ages 60–63): $11,250

For high earners, there's another critical change if your wages from the sponsoring employer exceed $145,000 (indexed annually), all catch-up contributions must be Roth-only. This means those extra dollars won't reduce your taxable income today, but they will grow tax-free for retirement. This rule only applies if your plan offers a Roth option. If it doesn't, high earners above the threshold won't be able to make catch-up contributions at all under the new rules.

These changes matter most for savers already near the ceiling. If you're in that group, the question isn't just "how much can I contribute?" It's "how should I allocate those dollars for maximum impact?" The following questions will help you weigh whether to keep adding to your 401(k) or explore other tax-smart strategies.

Questions to Ask When You're Approaching the Limit

1. Is a Roth conversion strategy worth looking at?

A Roth conversion involves moving funds from a traditional IRA or 401(k) into a Roth account, paying taxes now to enjoy tax-free growth later. This may be more impactful than simply increasing pre-tax contributions, especially if you expect higher tax rates in retirement.

The mechanics of a Roth conversion include calculating the taxable amount, timing conversions during lower-income years, and considering partial conversions to manage tax brackets. This strategy is particularly relevant for those holding higher balances in traditional IRAs who want to reduce future Required Minimum Distributions and create tax-free inheritance opportunities. Because of the complex tax consequences, consult a tax advisor before converting.

Another strategy some high earners have available is the "mega backdoor Roth." Certain workplace plans permit after-tax contributions above the standard deferral limit and allow those dollars to be converted to Roth, either through an in-plan Roth conversion or via an in-service rollover to a Roth IRA. This can significantly expand the amount you accumulate in tax-free Roth space, potentially up to the overall 2026 defined contribution limit when combined with employer contributions. For high earners seeking long-term tax diversification or anticipating higher future tax rates, the mega backdoor Roth can be a powerful tool, though it’s only available if the plan explicitly allows both after-tax contributions and in-service conversions.

2. Am I using all available tax-advantaged accounts?

Health Savings Account (HSA)

Before directing more into a 401(k), check whether you've maximized other vehicles like Health Savings Accounts (HSAs), which offer triple tax benefits: tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. Unlike flexible spending accounts, which follow a 'use it or lose it' rule, HSAs carry over year to year and can be invested like any other retirement plan.

Note: HSAs are only available if you're enrolled in a high-deductible health plan (HDHP), as defined by IRS guidelines. If your plan doesn't qualify, this option won't apply.

Individual Retirement Account (IRA)

Beyond HSAs, ensure you are maximizing IRA contributions. For 2026, IRA limits will rise to $7,500 for those under 50 and $8,600 for those 50+. Roth IRAs have income phase-outs starting around $153,000 for single filers and $242,000 for joint filers. IRAs may offer advantages over 401(k)s once you've captured the employer match, including access to individual securities, broader investment choices, and potentially lower fees compared to many workplace plans.

3. Should I prioritize taxable account strategies now?

If you've maxed out your 401(k), the next dollar might work harder in a taxable account. Taxable accounts also provide flexibility for goals like early retirement, relocation, or family needs, where penalty-free access to funds is critical. Keep in mind that taxable accounts don't have to create large tax burdens. Municipal bonds can deliver tax-free income at the federal level, and Treasuries offer safety plus state tax advantages. Tax-efficient ETFs and index funds can also help minimize capital gains exposure. This approach can make sense if liquidity and flexibility are more valuable than additional tax deferral.

4. Is permanent life insurance a fit for liquidity and tax planning?

Under certain circumstances, permanent life insurance can provide tax-deferred growth and access to cash value for liquidity needs. It's not for everyone, as costs and complexity are high, but it can complement other strategies for estate planning or income smoothing. Evaluate this option with a Citizens Private Wealth advisor to ensure it aligns with your goals.

5. Are my investment options and fees inside the 401(k) competitive?

Some 401(k) plans have limited fund menus or higher expense ratios. Once you've captured the employer match, compare your plan's offerings to what's available in IRAs or taxable accounts. Lower fees and investment choices outside the plan that are more suitable for your needs may improve long-term returns.

6. Have I elected to defer income under a non-qualified deferred compensation (NQDC) or supplemental executive retirement plan (SERP), or should I consider doing so?

These plans, offered by some employers to executives and other high-earners, allow income deferral beyond 401(k) limits, potentially reducing current taxes. However, payouts are fully taxable as ordinary income when received, and elections on timing (lump sum vs installments) must be made years in advance. Unlike qualified plans, these assets remain subject to employer solvency risk, and investment choices typically mirror the 401(k) lineup, which may limit options. These factors should be weighed carefully, and deferral decisions should be coordinated with other retirement strategies to manage tax impact and liquidity effectively.

7. Do I have self-employment or consulting income that opens the door to additional retirement strategies?

Many high earners also generate income through consulting, advisory work, or a solo entity. Even modest levels of 1099 income can unlock access to retirement vehicles outside the W-2 workplace plan. A Solo 401(k) or SEP IRA can substantially increase total tax-deferred savings depending on your business income. For those seeking even higher contribution limits, and willing to commit to a more structured formula, cash balance plans can allow six-figure annual contributions for eligible self-employed individuals. These plans can be valuable for accelerating retirement savings, managing current-year taxable income, or coordinating with an existing 401(k). They require annual funding and actuarial oversight, so they should be evaluated with an advisor to ensure long-term suitability.

Final Thoughts: Looking Beyond the 401(k)

Workplace retirement plans offer a convenient and tax-efficient way to save for retirement, especially when factoring in employer matching, but they aren't always the most flexible or cost-efficient. At high contribution levels, every additional dollar you save carries bigger implications for taxes, liquidity, and investment choice. That's why the decision about whether to increase contributions should also consider whether those dollars could work harder elsewhere.

If you are maxing out your 401(k), you are in rare air among savers, a position that opens doors to advanced planning opportunities. Use this moment to broaden your strategy: explore tax diversification, liquidity planning, and advanced wealth tools that complement your workplace plan.

Talk to a Citizens Wealth Advisor about how these changes fit into your bigger picture.