There is a limit on 401(k) contributions for two connected reasons: it protects federal tax revenue that would otherwise disappear into unlimited pre-tax deferrals, and it keeps the tax benefit from being captured almost entirely by the highest-paid workers. For 2026, you can defer up to $24,500 of your own salary, with additional catch-up room if you are 50 or older.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
Protecting Federal Tax Revenue
Most 401(k) contributions come out of your paycheck before income tax. Every dollar you defer is a dollar the government cannot tax in the current year. Without a ceiling, a high earner could shelter an entire salary from current taxation, and the Treasury would lose significant revenue. The cap under Section 402(g) of the Internal Revenue Code sets the maximum any individual can exclude from taxable income through elective deferrals in a given year.2Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust The tax break stays targeted at building a retirement account rather than becoming a tool for open-ended tax avoidance.
The same logic applies to Roth 401(k) contributions, which share the annual deferral limit with traditional pre-tax contributions.3Internal Revenue Service. Roth Comparison Chart Roth dollars are taxed on the way in, but they grow and come out tax-free, so an uncapped Roth option would still cost the Treasury substantial future revenue. You can split your deferrals between traditional and Roth in any proportion, but the combined total cannot exceed the annual limit.
Keeping the Benefit From Flowing Only to Top Earners
Congress didn’t set the cap purely to protect revenue. Federal regulations also require that 401(k) contributions not discriminate in favor of highly compensated employees, so that the tax advantage reaches the whole workforce and not just executives and owners.4eCFR. 26 CFR 1.401(a)(4)-1 – Nondiscrimination Requirements of Section 401(a)(4)
For 2026, you are classified as a highly compensated employee if you own more than 5% of the business or earned more than $160,000 from the employer in the prior year.5Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living Each year, plans must run an Actual Deferral Percentage test that compares the average contribution rate of HCEs to the average rate of everyone else. The test passes only if the HCE average is no more than 1.25 times the non-HCE average, or if it exceeds the non-HCE average by no more than 2 percentage points while remaining no more than double.6eCFR. 26 CFR 1.401(k)-2 – ADP Test
When lower-paid workers don’t participate enough to satisfy the test, HCEs may have to cut their contributions or take refunds of the excess. Failed-test refunds must generally go back to the HCEs within two and a half months after the plan year ends to avoid a 10% excise tax on the employer, and those refunded dollars become taxable income. The practical effect is to push employers toward broader participation through matching contributions, automatic enrollment, and clearer plan communication.
Two Separate Caps: Yours and the Plan’s
The $24,500 personal limit is only one of the ceilings. Section 415(c) sets a second, larger cap on the total annual additions to your account from all sources combined: your own deferrals, employer matching, employer profit-sharing, and any forfeitures reallocated to you. For 2026 that combined cap is $72,000, or 100% of your compensation, whichever is less.5Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living
The two caps do different work. The personal 402(g) limit follows you across employers, so if you participate in 401(k) plans at two different companies in the same year, your combined salary deferrals still cannot exceed $24,500.7eCFR. 26 CFR 1.402(g)-1 – Limitation on Exclusion for Elective Deferrals The 415(c) aggregate cap works per employer: each unrelated employer’s plan can receive up to $72,000 in total annual additions independently.8Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits The higher cap keeps a single employer from funneling large amounts of tax-advantaged compensation to one person through generous profit-sharing.
The stakes for exceeding the 415(c) ceiling are severe. If total annual additions exceed the limit, the plan can lose its tax-qualified status. For ordinary employees, disqualification means vested employer contributions from those years become taxable income. For highly compensated employees, the entire vested account balance may become taxable. Distributions from a disqualified plan also cannot be rolled into an IRA or another retirement account.9Internal Revenue Service. Tax Consequences of Plan Disqualification
Catch-Up Room If You’re Closer to Retirement
The base cap isn’t the whole personal limit. If you turn 50 or older by December 31, you can contribute an additional $8,000 in 2026, bringing your personal maximum to $32,500. You don’t need to be 50 at the moment of contribution; reaching that age by year-end is enough.10Internal Revenue Service. Retirement Topics – Catch-Up Contributions
SECURE 2.0 added a larger catch-up window for participants aged 60 through 63. During those years, the catch-up climbs to $11,250, for a total personal deferral of $35,750. Starting at age 64, you return to the standard $8,000 catch-up.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
Why the Number Changes Each Year
The limits aren’t set in stone. Section 415(d) directs the IRS to adjust the dollar amounts each year based on changes in the Consumer Price Index.11Office of the Law Revision Counsel. 26 USC 415 – Limitations on Benefits and Contribution Under Qualified Plans Updated figures usually appear in October or November for the following tax year.
Different limits round in different steps. The 402(g) elective deferral limit rounds to the nearest $500, which is why the personal cap moves in clean increments like $23,000, $23,500, and now $24,500.2Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust The 415(c) aggregate cap rounds to the nearest $1,000.11Office of the Law Revision Counsel. 26 USC 415 – Limitations on Benefits and Contribution Under Qualified Plans Without inflation adjustments, a static ceiling would quietly lose purchasing power year after year and erode workers’ ability to save enough for retirement.