Many investors believe that you can never save too much for retirement. While saving for retirement is essential, maximizing your 401(k) contributions every year isn’t always the most effective strategy.
In 2026, the 401(k) contribution limit is $24,500; individuals age 50 or older can contribute an additional $8,000 for $32,500 total. It’s easy to feel that you are ahead of the game if you make the maximum contribution each year, but there are several factors to consider with that strategy.
If your 401(k) contributions are made entirely on a pre-tax basis, you may be building a tax “time bomb” that could result in a higher tax bill in retirement than you may be comfortable with. As with most investment strategies, diversification is important, and a combination of Roth and pre-tax contributions may help manage future tax liability and improve flexibility in retirement.
In lieu of maxing out your 401(k) contribution every year, the following options are worth considering:
- Contribute to both a traditional (pre-tax) and Roth IRA. Like 401(k)s, IRAs have annual contribution limits set by the IRS. For 2026, you can contribute up to $7,500 to a traditional or Roth IRA, with an additional $1,100 available as a catch-up contribution if you are 50 or older. IRAs have potential tax advantages and typically offer more robust investment options compared to 401(k) plans. Roth IRAs are funded with after-tax contributions, and if certain conditions are met, including the account being open for at least five years and withdrawals beginning after age 59 ½, the earnings can be withdrawn tax-free. Eligibility to contribute directly to a Roth IRA may be limited based on income.
- Stash money in a health savings account (HSA). HSAs are tax-advantaged savings accounts used with high-deductible plans to pay for medical expenses. Any money you contribute to an HSA is fully tax-deductible, the money you accumulate there can grow tax-free, and distributions used for qualified medical expenses are not taxed. Because you can maintain an HSA for the rest of your life, even into retirement, this type of account can be a nice supplement to your retirement savings. For 2026, the IRS has set the maximum HSA contribution at $4,400 for self-only coverage and $8,750 for family coverage.
- Open a brokerage account for additional savings. If you want the ability to save money without contribution and investment limits, this is a solid option, despite the lack of immediate tax advantages.
- Pay off debt. This option may not seem as exciting as the others, but it can have a major impact on your overall finances, especially high-interest debt such as credit cards.
- Live in the moment. While funding your retirement accounts is vital, it’s important not to over save and earmark some money for the present. Don’t be afraid to take that epic vacation you’ve been putting off or to make some much-needed home improvements.
Saving for retirement is an essential financial strategy, and no single tactic is right for everybody. Consider all the options above and work with your financial advisor to determine which path is right for your lifestyle, goals, and time horizon.
Article provided by Robert Cleary, Senior Vice President/Investments, with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, who can be contacted at Stifel’s 3 Bryant Park office at (212) 847-6517.
Diversification and asset allocation do not ensure a profit or protect against loss.
Decisions to roll over or transfer retirement plan or IRA assets should be made with careful consideration of the advantages and disadvantages, including investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and your unique financial needs and retirement planning. Neither Stifel nor Stifel Financial Advisors provide recommendations with respect to your decision to move assets out of an employer-sponsored retirement plan. Once you inform your Stifel Financial Advisor that you have chosen to roll your retirement assets to an IRA with Stifel, your individual investment needs can be addressed. You should consult with your tax advisor regarding your particular situation as it pertains to tax matters.
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