Retirement & 401(k)
How 401(k), IRA, and pension contributions affect your paycheck
Can I contribute to both a 401(k) and an IRA?
Yes, you can contribute to both a 401(k) and an IRA in the same year. For 2026, you can contribute up to $23,500 to a 401(k) plus $7,000 to an IRA ($8,000 if 50+). However, your IRA deduction may be reduced if your income exceeds certain thresholds and you have workplace retirement coverage.
Does my employer match count toward the 401(k) limit?
No, employer 401(k) matching contributions do not count toward your employee contribution limit of $23,500 for 2026. Employer matches have a separate, much higher combined limit of $70,000 total per year, so the match doesn't reduce your personal contribution space.
How does a pension affect my paycheck and taxes?
Pension contributions are typically pre-tax, reducing your taxable income. For example, a teacher contributing 6% of a $60,000 salary ($3,600/year) saves roughly $900-1,400 annually in federal and state taxes, making the actual paycheck impact only $2,200-2,700 instead of the full $3,600.
How much does a 401(k) contribution reduce my paycheck?
A 401(k) contribution reduces your paycheck by less than the full amount because it's pre-tax. If you earn $75,000 and contribute 6% ($4,500/year), your biweekly paycheck drops by only ~$126 instead of $173 because you save roughly $47 per paycheck in federal and state taxes.
How do I maximize my employer's 401(k) match?
To maximize your employer's 401(k) match, contribute at least the percentage of salary required to get the full match. For example, if your employer matches 50% up to 6% of salary, contribute exactly 6% of your salary ($3,600 annually on $60,000) to receive the maximum $1,800 employer contribution.
What is the IRA contribution limit for 2026?
The IRA contribution limit for 2026 is $7,000 for people under 50 and $8,000 for those 50 and older. This represents a $500 increase from 2025 limits due to inflation adjustments announced by the IRS.
What is the Roth IRA income limit for 2026?
For 2026, Roth IRA contributions phase out starting at $146,000 for single filers ($230,000 for married filing jointly) and are completely eliminated at $161,000 single ($240,000 married). These limits increased from 2025 due to inflation adjustments.
Should I contribute to a Roth 401(k) or traditional 401(k)?
Choose traditional 401(k) if you're in the 22%+ tax bracket now and expect lower taxes in retirement. Choose Roth 401(k) if you're in the 12% bracket or younger than 30, since you'll likely face higher future tax rates. Most people earning $50,000-$100,000 benefit more from traditional.
Should I roll over my 401(k) when I change jobs?
Yes, you should typically roll over your 401(k) when changing jobs to avoid the 20% mandatory withholding and 10% early withdrawal penalty. A direct rollover to your new employer's 401(k) or an IRA preserves the tax-deferred status of your $50,000+ average account balance.
What are 401(k) catch-up contributions?
401(k) catch-up contributions let workers 50+ contribute an extra $7,500 beyond the $23,500 standard limit ($31,000 total for 2026). Workers ages 60-63 get a super catch-up allowing $34,750 total contributions. These reduce your taxable income dollar-for-dollar.
What happens to my 401(k) if I leave my job?
You have 4 options when leaving your job: leave money in the old plan, roll over to your new employer's 401(k), roll over to an IRA, or cash out (not recommended). Accounts under $5,000 may be automatically distributed. You keep 100% of your contributions plus any vested employer matching.
What is the 401(k) contribution limit for 2026?
The 2026 401(k) contribution limit is $23,500 for employees under 50, $31,000 for those 50+, and $34,750 for ages 60-63 with the new 'super catch-up' provision. These are employee contribution limits only — employer matches don't count toward these caps.
What is a 401(k) employer match and how does it work?
A 401(k) employer match is when your company contributes money to your retirement account based on how much you contribute. For example, with a 50% match on 6% of salary, if you earn $60,000 and contribute $3,600 (6%), your employer adds $1,800 (50% of your contribution).
What is a 403(b) and how is it different from a 401(k)?
A 403(b) is the nonprofit equivalent of a 401(k), offered by schools, hospitals, and tax-exempt organizations. Both have the same $23,500 contribution limit for 2026, but 403(b)s often have limited investment options (typically annuities) and fewer loan provisions than 401(k)s.
What is a 457(b) plan?
A 457(b) plan is a retirement savings plan for government employees and some nonprofit workers that allows up to $23,500 in pre-tax contributions for 2026 (plus $7,500 catch-up if 50+). Unlike 401(k)s, 457(b) plans have no early withdrawal penalty before age 59½.
What is a backdoor Roth IRA?
A backdoor Roth IRA is a legal strategy where high earners contribute $7,000 to a traditional IRA (no income limits), then convert it to a Roth IRA. For 2026, direct Roth contributions phase out at $153,000 (single) and $228,000 (married), but backdoor conversions have no income limits.
What is a Roth IRA and how does it work?
A Roth IRA is a retirement account funded with after-tax dollars that grows tax-free. You contribute up to $7,000 in 2026 ($8,000 if 50+) with money you've already paid taxes on, but all future growth and qualified withdrawals after age 59½ are completely tax-free. Unlike traditional IRAs, there are no required minimum distributions.
What is the new super catch-up contribution for ages 60-63?
Workers ages 60-63 can make super catch-up 401(k) contributions of up to $34,750 in 2026 ($11,250 more than the regular $23,500 limit). This reduces your taxable income and can save high earners $2,500-4,500 annually in federal taxes alone.
What is the Thrift Savings Plan (TSP)?
The Thrift Savings Plan (TSP) is the federal government's 401(k)-style retirement plan for federal employees and military personnel. For 2026, you can contribute up to $23,500 with automatic government matching up to 5% of salary for FERS employees, making it one of the best retirement deals available.
What is vesting and when am I fully vested?
Vesting is your ownership percentage of employer 401(k) contributions. Most companies use a 6-year graded schedule (0% year 1, 20% year 2, up to 100% year 6) or 3-year cliff vesting (0% until year 3, then 100%). Your own contributions are always 100% vested immediately.