A secret to retirement success

“Set it and forget it!” You’ve probably heard that advice when it comes to your 401k account. And to a point, it’s true – frequent changes to a long-term investment portfolio can derail your progress. But never reviewing your 401k contributions can be just as risky.

One of the most underappreciated drivers of retirement success is reviewing your 401k contribution strategy at the start of each year. Your financial life doesn’t stand still. You get raises, change jobs, marry, divorce, take career breaks and begin thinking seriously about retirement – and each of those shifts can open the door to smarter contribution choices.

Add to that the expanded availability of Roth 401k options, annual IRS limit increases and continuing SECURE 2.0 Act changes, and it’s clear that a once‑and‑done approach can leave money – or tax opportunities – on the table.

Even though we’re already well into 2026, it’s not too late to revisit your 401k contributions for this year.

NEW 401K CONTRIBUTION LIMITS FOR 2026

The IRS increased retirement plan contribution limits for 2026, creating new opportunities to save more – especially for workers over age 50.

Pretax and Roth 401(k) contribution limits

Source: IRS.gov

For the second year in a row, those age 60 to 63 are eligible for an enhanced catch-up contribution of $11,250, on top of the standard limit. If you’re in this age group and have the cash flow, maximizing contributions during these years can materially improve retirement readiness.

Important SECURE 2.0 reminder for high earners

Beginning January 1, 2026, if you are age 50 or older and your prior-year FICA wages exceeded $150,000, all catch-up contributions must be made to a Roth 401(k) – not pretax. This rule comes from the SECURE 2.0 Act and applies only to the catch-up portion, not your standard deferrals.

ROTH VS. PRETAX 401k: THE DECISION STILL ISN’T SIMPLE

Choosing between a pretax 401(k), a Roth 401(k) or a combination of both remains one of the most consequential – and misunderstood – retirement planning decisions.

• Pretax contributions lower your taxable income today, but future withdrawals are taxed as ordinary income.
• Roth contributions are taxed upfront, but qualifying withdrawals in retirement are tax‑free.

The real question isn’t which is “better” in general; it’s when paying taxes makes the most sense for you. For many households, that answer changes across different life stages.

LOOK BEYOND THE RULES OF THUMB

When you review your contribution strategy, you may think you already know what strategy makes sense. Common rules such as “Roth when you’re young, pretax when you’re older” can be useful starting points. But when tax brackets, filing status, career changes or new legislation shift, those assumptions may no longer hold.

The examples below show how reviewing your strategy can lead to very different (and more tax‑efficient) outcomes.

Example 1: Early career

• Recent college graduate in STEM with a $72,000 salary
• No dependents or charitable contributions

At the start of a career, Roth contributions often make sense because future earnings (and tax rates) may be higher. But pretax contributions can still play a role.

In this case, contributing 10% pretax would keep this worker in the 22% federal tax bracket. By increasing contributions to 12% pretax, they could potentially drop into the 12% bracket, freeing up room to add Roth contributions above that level.

The result: A blended strategy can help lower current taxes and capture potentially the lowest marginal rate they may see for decades.

Example 2: Divorce

• Recently divorced empty nester, mid-50s
• Filing single in 2026
• $240,000 salary
• Previously split contributions between pretax and Roth

As a joint filer, Roth contributions may have seemed reasonable. As a single filer, continuing that approach could keep them in the 32% federal tax bracket.

By switching to 100% pretax contributions for the maximum allowed of $24,500, maxing out the 401(k) catch‑up as Roth and paying $10,000 in health insurance pre-tax, taxable income could fall enough to land in the 24% bracket, significantly improving after‑tax efficiency.

The result: By shifting fully to the maximum allowed pretax 401k contributions during peak earning years, they may be able to reduce current taxes, preserve cash flow and create more flexibility to manage taxes later in retirement – when their income may be lower and more controllable.

Example 3: Early retirement

• Married couple, both age 60
• Each formerly earning $150,000
• Each has been maxing out their pretax contributions for years 
• One spouse steps away from work in 2026
• Couple tightens their belts rather than dip into savings

It’s easy to assume Roth contributions don’t make sense in your 60s – but transition years can flip the script.

With one income temporarily gone and spending reduced, this couple may find themselves in a lower tax bracket than they expect to have later in retirement, when Social Security, RMDs and portfolio income stack up.

In that case, directing the working spouse’s 2026 contributions to a Roth 401(k) could help.

The result: Taking advantage of a temporary dip in household income by using Roth 401k contributions can help create a pool of tax‑free retirement income and provide greater flexibility to manage future taxes once Social Security benefits and required minimum distributions begin.

NEXT STEPS FOR RETIREMENT PLANNING

The specific details of these examples matter less than the broader takeaway: your 401(k) contribution strategy deserves an annual checkup.

Tax laws change. Life changes. And your strategy should evolve with them.

Keep in mind: Retirement contribution decisions involve tradeoffs that depend on your income, tax situation and long‑term goals. While annual IRS limit changes and new laws may create planning opportunities, no single strategy is appropriate for everyone. Collaborating with a tax professional can help you navigate these complex tax decisions.

If you’re unsure whether your 2026 contributions are optimized – especially with new SECURE 2.0 rules in effect – consider reaching out to a financial advisor who can help you weigh today’s tax planning against tomorrow’s flexibility.