401(k) Contribution Limits are Rising, But Don’t Take the Bait

Workers have a choice of tax-advantaged retirement plans they can contribute to, but for many people, a 401(k) is the default option. Some workers are actually auto-enrolled in their 401(k), but even for those who aren’t, signing up for benefits is simple and fast. Employers often match contributions to 401(k) plans, which is a huge benefit, and 401(k) accounts also come with generous tax breaks, as you can contribute with pre-tax dollars.

It’s clear that these accounts have a lot going for them, so when you hear that 401(k) contribution limits are rising for 2026, that seems like great news and you may be tempted to try to increase your contributions because of it.

You shouldn’t rush into putting extra money in your 401(k) plan, though. In fact, many people shouldn’t take advantage of these higher limits, despite the fact that it seems like a good idea on the surface. Here’s why jumping at the chance to invest more in your 401(k) could be a mistake. 

Should you increase 401(k) contributions as the limit goes up?

In 2025, the maximum contribution to a 401(k) for most workers was $23,500. The limit is increasing to $24,500 in 2026, according to the IRS.  Workers 50 and over had a catch-up contribution limit of $7,500 in 2025, and that limit is also going up to $8,000. For employees ages 60 to 64, the catch-up contribution limit for both 2025 and 2026 is higher than the standard $8,000, totaling $11,250. 

The change to the contribution limits means you can invest quite a bit more in your 401(k) without hitting the cap. But, for most people, it simply doesn’t make sense to try to invest up to the limits. In fact, for many people, it doesn’t even make sense to increase their 401(k) investments at all, even if they have a long way to go before maxing out the account. 

Anyone who is not already earning their full employer match in their 401(k) should make it a point to do everything they can to get this free company money in 2026. But, for those who are maxing out their match already, it’s important to really evaluate your options before investing even one extra $1 in your 401(k), even if you feel like you should be increasing what you put into this account as the contribution limit rises.

Why increasing your 401(k) contributions could be a mistake

Increasing the amount that you contribute to your 401(k) could end up being a mistake because, when compared to other tax-advantaged retirement plans, 401(k) accounts really aren’t that great. 

The reality is, a 401(k) provides you with very limited investment options, and you have little control over what’s happening to your money. You’ll have to keep your account with the plan administrator your employer selects and choose from the investments that your plan administrator happens to make available — even if there are high administrative fees and investment costs. You’ll have very few choices of investments in most 401(k) plans, and you’ll have to deal with the hassle of selling the investments to move the account when you leave your job, unless you want a bunch of old 401(k) plans with different employers to manage. 

If your employer only offers a traditional 401(k) and doesn’t make a Roth available, you are also limited in the timing of your tax savings. 

Other accounts, like HSAs, Roth IRAs, or traditional IRAs, can give you similar or better tax breaks to your 401(k), allow you to pick your brokerage firm, make it possible to invest in many more assets, and give you more control over the fees you pay. Unless you are maxing out these other tax-advantaged accounts that you have access to and are eligible for and have money left over, increasing 401(k) contributions simply isn’t the best choice.

In fact, there are a ton of different investment options you should consider, including annuities, as an alternative to upping your 401(k) contributions just because the limits for how much you can invest are going up. Be sure to compare all of these other alternatives to a 401(k) to see if they offer better benefits. If they do, invest enough to earn your 401(k) match and then put your money elsewhere. Don’t take the bait and overinvest in your 401(k) just because it’s easy or because the limits are going up and you feel you should. Otherwise, your retirement security could suffer because of it.