Best moves for retirement savings in 2026 | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

For 2026, the IRS has again raised the amount you can put into tax-advantaged retirement accounts, which effectively lets you shelter more of your income from taxes or future capital-gains bills.

The employee deferral limit for 401(k), 403(b), and most 457 plans rises to $24,500, up from $23,500 in 2025, and workers 50 and over can add an $8,000 catch-up for a combined $32,500 in employee contributions.

IRA limits also move up: You can contribute $7,500 if you are under 50, and $8,600 if you are 50 or older in 2026, subject to income-based phaseouts for Roth contributions and deductibility of traditional IRA contributions.

As Social Security benefits rise by 2.8% in 2026, average retired workers will see their checks increase by about $56 a month, which helps but likely won’t keep up with health care and housing inflation.

Roth vs. traditional IRA: how to use higher limits

The first big choice for 2026 is not just “How much can you save?” but “Where should each dollar go?” For many workers, especially if you get a match, the first priority is to max out your 401(k) or at least get as close as your budget allows before worrying about taxable brokerage accounts.

The new $24,500 deferral limit means that even a worker earning around $100,000 could shelter nearly a quarter of gross pay if they are willing to push their savings rate above 20%.

The deferral limit for 401(k), 403(b), and most 457 plans, as well as IRA limits, will increase for 2026.

Shutterstock

Jay Zigmont, founder of Childfree Trust, argues that the Roth vs. traditional 401(k) decision is less about hunting for the perfect tax answer and more about your long-term plan, especially where you expect to live.

“The key is to focus on maxing out your 401(k),” Zigmont told TheStreet.

He notes that if you currently live in a high-tax state such as California and plan to retire in a low- or no-tax state like Tennessee, a traditional 401(k) can let you avoid state income taxes altogether on those dollars.

That lens shifts by income level:

If you are in a high bracket now (say, top federal brackets in a high-tax state), leaning toward traditional 401(k) contributions and lowering your current tax bill often makes sense, especially if you plan to move to a lower-tax state later.
If you are in a lower bracket, or you have already maxed out your 401(k) and would otherwise invest excess cash in a brokerage account, Roth starts to look more attractive because growth can be tax-free.

More Personal Finance:

Zigmont puts it this way: “If you have excess cash that will go into a brokerage account after you max out your 401(k), then you may want to consider contributing to Roth, no matter your income tax bracket, as the growth becomes tax-free.”

Making catch-up space work for late starters

If you are 50 or older in 2026, the higher catch-up space can look both exciting and intimidating. Between the $24,500 standard 401(k) limit and the $8,000 catch-up, you can defer up to $32,500 from your paycheck, and employer contributions can push total plan funding even higher.

But only a sliver of workers will realistically hit those caps without a very intentional plan.

Zigmont points to a structural issue: “Keep in mind that if your income is over $150,000, your catch-up contribution will have to be Roth,” he said, referencing the SECURE 2.0 rules that shift higher earners’ catch-ups into Roth buckets in many plans. That is a feature for long-term tax-free growth, but it removes the immediate tax deduction that many older workers have used to lower their current tax bill.

He adds that “people making less than $150,000 may not have the extra money for a catch-up contribution as their expenses may eat up much of their salary,” which means the textbook limits often overstate what real households can do.

To actually use more of that space, Zigmont recommends automation tied to your raises rather than trying to jump straight to the max. “The key is to contribute as much as you can to your 401(k) and increase your contribution each year,” he said.

“The best practice is to increase your 401(k) contribution by the same amount as your raise each year. For example, if you get a 3% raise, increase your 401(k) contribution by 3%. It is a way to force savings.” That approach lets you gradually increase your savings without feeling like you are cutting your take-home pay.

If you are already behind, 2026 is a good year to:

Turn on automatic annual 1 to 3 percentage-point increases in your plan, especially if your provider offers “auto-escalation.”
Funnel windfalls (bonuses, vesting RSUs, or side income) into catch-up contributions or IRA funding before those dollars hit your lifestyle.
Coordinate with your spouse’s plan so that at least one of you is using as much catch-up space as your household budget can sustain.

Moving from cash to long-term investments

After a stretch of high short-term interest rates, many pre-retirees have parked large sums in money-market funds and high-yield savings. As the Federal Reserve moves toward lower rates, those juicy yields are likely to drift down, and keeping too much in cash becomes a drag on your future purchasing power.

The trade-off in 2026 is how quickly to move extra cash into longer-term investments without taking on more risk than you can handle.

Zigmont pushes his clients to keep cash for stability but not for long-term growth. “In general, you should keep 3–6 months of expenses in cash, and then keep cash for any planned goals in the next three years,” he said.

“Any cash you have that is beyond your emergency fund and planned current goals needs to get invested in the market. Having more cash does not make you more stable, as inflation will eat away at your purchasing power.”

The key, he says, is simplicity and understanding: “The key is to only invest in what you understand. For our clients, we recommend a simple, passive, long-term portfolio made up of the entire U.S. stock market, the world stock market, and bonds. If your investments are keeping you up at night, you either don’t understand what you have invested in or have taken on more risk than you can stomach. Keep your investments simple and focused on the long run.”

That can mean shifting some cash into intermediate-term bond funds or stable value funds inside your plan, while keeping enough in money markets to cover upcoming big purchases and your emergency cushion.

Building guaranteed income and protecting against sequence risk

The 2.8% Social Security cost-of-living adjustment for 2026 is designed to keep benefits in line with inflation, but the math rarely feels that neat when Medicare premiums and rents jump faster than the headline CPI.

The Social Security Administration estimates that the average retired worker’s monthly benefit will rise from about $2,015 to roughly $2,071 in January 2026, but higher Medicare Part B premiums can quickly eat into that bump. For many households, Social Security alone will not be enough to cover basic expenses, especially health care.

Zigmont says that rules of thumb like the “4% safe withdrawal rate” can still serve as a starting point but should not be treated as guarantees. “Some people use a Safe Withdrawal Rate of 4% as a guideline for how much to withdraw from their portfolio each year,” he noted. “It is a rough number that will get you in the ballpark and have a low risk of running out of money.”

In practice, that means if you want to withdraw $40,000 a year from your portfolio in retirement, you should be thinking in terms of roughly a one-million-dollar nest egg, adjusted for your own risk tolerance and other income sources.

When deciding how much of your basic budget should be covered by guaranteed income versus portfolio withdrawals, a useful 2026 move is to map your “needs” versus “wants.”

Aim to cover non-negotiable expenses such as housing, utilities, food, basic transportation, and Medicare premiums with guaranteed income streams to the extent possible.
Use portfolio withdrawals and flexible spending to fund discretionary categories like travel, gifts, and upgrades, which you can dial back in bad market years to reduce sequence-of-returns risk.

The bigger story for 2026 is that higher limits and modest COLAs do not guarantee retirement security on their own — but they give you more tools.

If you use this year to dial up savings, automate catch-ups, trim high-interest debt, and lock in a simple, understandable investment and long-term care strategy, you give yourself a much better shot at turning volatile markets into a sustainable, flexible retirement paycheck.