An elective deferral to a 401(k) is the portion of your salary you tell your employer to send into your retirement plan before the money lands in your paycheck. For 2026, you can defer up to $24,500 of your wages, with additional 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 The dollars you defer never appear as take-home pay, and depending on which tax treatment you choose, they either lower your current tax bill or grow toward tax-free withdrawals in retirement.
How Much You Can Defer in 2026
The standard limit is $24,500, up from $23,500 in 2025.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 The cap belongs to you, not to each plan. If you work two jobs that both offer a 401(k), your combined deferrals across both plans still cannot exceed $24,500.2Internal Revenue Service. How Much Salary Can You Defer if You’re Eligible for More Than One Retirement Plan The same rule applies if you participate in a mix of 401(k) and 403(b) plans in the same year.
Job-changers get tripped up here. Your new employer’s payroll has no idea what you contributed at your old job, so if you switch mid-year you need to track your year-to-date deferrals yourself and adjust your new plan elections to stay under the cap.
Catch-Up Contributions After Age 50
If you turn 50 at any point during 2026, you qualify to contribute above the standard limit for the full year.3Internal Revenue Service. Issue Snapshot – 401(k) Plan Catch-Up Contribution Eligibility The standard catch-up is $8,000, which brings your ceiling to $32,500.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
Enhanced Catch-Up at Ages 60 Through 63
A SECURE 2.0 provision creates a higher catch-up tier for participants who are 60, 61, 62, or 63 during the plan year. For 2026, that enhanced amount is $11,250, replacing the standard $8,000 for workers in that age window.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Combined with the base deferral limit, someone aged 60 to 63 can defer up to $35,750 in 2026. Once you turn 64, you drop back to the standard $8,000 catch-up.
Pre-Tax or Roth: Choosing the Tax Treatment
Your elective deferrals go into one of two buckets, and the distinction shapes both your current paycheck and your retirement tax bill.
Traditional pre-tax deferrals come out of your paycheck before federal income tax is calculated. Your taxable income drops by the amount you defer, so your tax bill this year is lower. Every dollar you eventually withdraw in retirement is taxed as ordinary income. Employers report traditional 401(k) deferrals in Box 12 of your W-2 using Code D.4Internal Revenue Service. Common Errors on Form W-2 Codes for Retirement Plans
Roth deferrals work the other way. You pay income tax on the money now, so your current paycheck is smaller, but qualifying withdrawals in retirement come out tax-free.5GovInfo. 26 USC 402A – Optional Treatment of Elective Deferrals as Roth Contributions This treatment tends to favor younger workers or anyone expecting to be in a higher tax bracket later.
Either way, both traditional and Roth deferrals are subject to Social Security and Medicare taxes in the year the money is earned.6Internal Revenue Service. Retirement Plan FAQs Regarding Contributions For 2026, wages up to $184,500 are subject to Social Security tax, and your 401(k) deferrals count toward that wage base. Medicare tax applies to all earnings with no cap.
Mandatory Roth Catch-Up Coming in 2027
One change is on the horizon for high earners who make catch-up contributions. Under final IRS regulations, starting in taxable years beginning after December 31, 2026, employees whose prior-year wages from the sponsoring employer exceeded a specified threshold must make all catch-up contributions on a Roth (after-tax) basis.7Internal Revenue Service. Treasury, IRS Issue Final Regulations on New Roth Catch-Up Rule, Other SECURE 2.0 Act Provisions Pre-tax catch-ups will no longer be available for those workers. If your plan does not offer a Roth 401(k) option by then, you may lose the ability to make catch-up contributions altogether. This rule does not apply to 2026 deferrals, but if you are a high earner approaching 50, it is worth understanding before your next open enrollment period.
What Happens if You Go Over the Limit
If your total deferrals across all plans exceed the annual limit, fix it quickly. The deadline to request a corrective distribution is April 15 of the year after the excess was contributed. For 2026 excess deferrals, that means April 15, 2027, and the deadline does not extend even if you file a tax extension.8Internal Revenue Service. Consequences to a Participant Who Makes Excess Deferrals to a 401(k) Plan
The corrective distribution must include both the excess amount and any investment earnings that excess generated during the calendar year of the excess contribution. Earnings from the gap between the end of that calendar year and the actual distribution date are not part of the calculation.8Internal Revenue Service. Consequences to a Participant Who Makes Excess Deferrals to a 401(k) Plan The plan administrator reports the corrective distribution on Form 1099-R.9Internal Revenue Service. Instructions for Forms 1099-R and 5498
Miss April 15 and the consequences get worse. Excess deferrals not corrected on time are subject to double taxation: the IRS taxes the money in the year you contributed it, and again in the year you eventually withdraw it from the plan.10Internal Revenue Service. 401(k) Plan Fix-It Guide – Elective Deferrals Weren’t Limited to the Amounts Under IRC Section 402(g) Anyone juggling multiple plans in a single year should keep a running tally.
Highly compensated employees can also receive an unexpected spring refund from the plan itself. If the plan fails its nondiscrimination testing, the employer may return part of your deferrals to bring the plan back into compliance, and the refunded amount becomes taxable income in the year you receive it.11Internal Revenue Service. The Plan Failed the 401(k) ADP and ACP Nondiscrimination Tests
Setting or Changing Your Deferral Election
Your plan’s Summary Plan Description spells out when and how you can change your deferral rate. Some plans allow changes every pay period; others restrict adjustments to monthly or quarterly windows. Most plans now offer an online portal where you can update your deferral percentage or dollar amount in a few minutes. If your plan does not have a digital option, HR can provide a Salary Reduction Agreement form to submit on paper.
Changes typically take one to two pay cycles to appear in your paycheck, so don’t panic if your first stub after submitting doesn’t reflect the new amount. Verify it on the second or third. If you’re trying to hit $24,500 exactly, or land just under, work backward from the pay periods remaining in the year and set your per-period contribution accordingly. A flat percentage is simpler and rises automatically with raises; a fixed dollar amount gives you more precision at the cap.
If you were automatically enrolled and never made an active election, you are probably deferring somewhere between 3% and 10% of pay, with an annual bump built in. That default is often below what you would need to capture your full employer match. Check your current rate and adjust it intentionally rather than coasting on a number someone else chose.
Your Deferrals vs. Employer Money
The $24,500 cap covers your salary contributions only. A separate, larger limit under Section 415(c) caps the total of everything flowing into your account each year: your deferrals, employer matching, profit-sharing contributions, and reallocated forfeitures. For 2026 that total-additions ceiling is $72,000, or 100% of your compensation, whichever is less. Catch-up contributions do not count against it. Most employees never bump up against this limit; it matters mainly for high earners with generous employer contributions.
Your own deferrals are 100% yours from the moment they leave your paycheck. Employer matching contributions usually are not. Plans generally must use one of two federal minimum vesting schedules for matching contributions:12Internal Revenue Service. Issue Snapshot – Vesting Schedules for Matching Contributions
- Three-year cliff vesting, where you own none of the employer match until you complete three years of service, then become 100% vested all at once.
- Six-year graded vesting, where you vest gradually, starting at 20% after two years and reaching 100% after six.
Safe harbor 401(k) plans are the exception: matching contributions must be fully vested immediately. Plans using a Qualified Automatic Contribution Arrangement can require up to two years of service before full vesting.12Internal Revenue Service. Issue Snapshot – Vesting Schedules for Matching Contributions If you are considering a job change, your vesting schedule tells you exactly how much employer money you would leave behind by walking away early.
The Saver’s Credit for Lower Incomes
Lower- and moderate-income workers who make elective deferrals may qualify for the Retirement Savings Contributions Credit, commonly called the Saver’s Credit. For 2026, the credit phases out entirely once adjusted gross income exceeds $80,500 for married couples filing jointly, $60,375 for heads of household, or $40,250 for single filers.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 The credit is worth 10%, 20%, or 50% of your contributions, up to $2,000 for single filers or $4,000 for joint filers, depending on your income. If you fall within these ranges and you are already deferring, claim the credit on your tax return.