On February 15, 2026, the Internal Revenue Service (IRS) released Circular 2026-04. The main takeaway is that the 401(k) retirement plans contribution limit for most people remains at $24,500 for 2026. That’s unchanged from 2025 after the cost-of-living adjustment.
But here’s something Vanguard pointed out in its January 2026 report (and yeah, they manage over $2.3 trillion in retirement money, so they know what they’re talking about): you actually need earned income to put money into a 401(k) or IRA.
That means cash from an inheritance, a gift, or passive investments like rental properties or stock dividends? Doesn’t count. No matter how much you have sitting there, if you didn’t work for it, you can’t use it to fund those accounts.
IRS Issues New Notice on Retirement Savings
If you’re between 60 and 63 years old, you get a higher catch-up limit thanks to the SECURE 2.0 Act. According to IRS Notice 2026-12, the extra catch-up contribution for 2026 is $11,250. This means a 62-year-old whose employer allows catch-up contributions could stash away up to $35,750 in 2026. That’s $3,250 more than the standard $8,000 catch-up available to workers over 50 outside that age window.
Many people assume you have to choose between a 401(k) and an IRA. You don’t. Vanguard’s retirement guide (updated February 10, 2026) says the next: “You can have both a 401(k) and an IRA and use them together to save for retirement.” Ain’t that nice?
Comparing Your Tax-Advantaged Options
401(k)s generally offer higher contribution limits, while IRAs usually provide more investment options and greater personal control. For example, a 45-year-old journalist earning $90,000 could contribute $24,500 to her workplace 401(k) — capturing her employer’s 4% match — and still deposit another $7,500 into a traditional or Roth IRA, as long as her modified adjusted gross income (MAGI) stays within the allowed limits.
On the IRA side, IRS Publication 590-A (2026) states that your total contributions to all traditional and Roth IRAs combined cannot exceed $7,500 in 2026 ($8,600 if you’re 50 or older).
This is an aggregate limit, not per account. So if you put $4,000 into a traditional IRA, you only have $3,500 left for a Roth IRA (or $4,600 if you’re over 50).
Income-Based Contribution Limits
Roth IRAs have income restrictions that eliminate many high earners. According to Fidelity’s February 2026 summary:
- Single filers can contribute the full amount if their MAGI is under $153,000. The benefit phases out between $153,000 and $168,000.
- Married couples filing jointly can contribute the full amount below $242,000, with the phase-out running through $252,000.
Take a married engineer with joint income of $260,000 — as cited in Fidelity’s January 2026 trend report. He couldn’t contribute directly to a Roth IRA, but his advisor recommended the backdoor Roth IRA strategy, which remains legal under tax code section 408A.
Choosing between a traditional and a Roth IRA comes down to one key question: will your tax rate be higher now or in retirement?
- Roth IRAs offer tax-free growth and tax-free withdrawals — ideal if you expect to be in a higher tax bracket later.
- Traditional IRAs provide an immediate tax deduction — better if you want to lower your taxes today.
A 35-year-old making $60,000 who expects their income to rise significantly may benefit more from a Roth. A 55-year-old at peak earnings planning to retire in a low-tax state usually does better with a traditional IRA.
Final tip: How to proceed?
Before making any 2026 contributions, check two key numbers: last year’s MAGI and whether your employer offers a 401(k) match. Exceeding the limits triggers a 6% annual penalty on the excess amount. When in doubt, review Schedule 8606 or consult a certified financial planner.
In any case, this is just an informative text, and you should always consult your retirement expert or financial advisor in order to determine which one fits better your situation and finances.
