I hope you enjoyed a wonderful holiday season and the new year is off to a strong start!
As we start a fresh calendar year, I want to highlight a few changes to contributions limits across your employer benefit plans.
401k contributions – The contribution limit increased to $24,500 this year.
Catch-Up Contributions – Additional $8,000 for anyone over age 50.
Roth IRA – The contribution limit increased to $7,500 / person this year.
Catch-Up Contributions – Additional $1,100 for anyone over age 50.
Health Savings Account – The contribution limit increased to $4,400 (self-only) and $8,750 (family) coverage this year.
For anyone who typically front-loads their 401k contributions to max out this account early in the year, it’s worth double-checking your employer’s policy matching contributions. Some employers will only contribute during pay periods that you’re actively contributing. So front-loading these contributions could actually result in leaving money on the table. I wrote more about this topic here. The matching policy is often defined in your 401k plan summary booklet, which I’d be happy to review for any of you, if I haven’t done so already.
One other aspect to evaluate with your 401k is if your company offers the ability to make “After-Tax” contributions. Not all 401k plans allow this, however, it has become increasingly popular among late-stage private companies and public companies to offer this as a benefit to attract and retain talent. While the employee deferral is limited to $24,500, the total contribution limit (employee deferral + employer match + after-tax contributions) is $72,000 for 2026.
At first glance, that’s a large number to be saving on an annual basis into your 401k. Often, it is not feasible for most people with salary-only contributions. However, some plans will allow you to elect a specific % (i.e. 50%) of your annual bonus or commissions to be contributed to your after-tax 401k. Additionally, for anyone vesting RSUs or who realizes stock proceeds from a tender offer, you could use some of these proceeds to supplement your monthly expenses so that you can increase the contributions to your after-tax 401k.
While the after-tax 401k doesn’t reduce your tax exposure for the current year, the real power of this strategy lies within the ability to convert these contributions into your Roth 401ks through “In-Plan Conversions”. This is an important step to complete the process and make sure these funds get moved to your Roth 401k. Once the funds are invested within your Roth account, all of the future growth is tax-free. Taking advantage of after-tax contributions / in-plan Roth conversions for even a few years can reduce your lifetime tax bill by creating a sizable tax-free account that is compounding to and throughout your retirement.
Looking Ahead – Q1 Planning
I am actively putting together tax summary letters to document the events that took place and decisions made last year. I often send these summary letters to accountants in January to give them an annual recap and provide a one-page overview to reference as they begin to preparing tax returns. These letters also include a list of what tax documents I would expect each client to receive so that everyone is on the same page.
As we begin a new year, I believe this is a great time to reflect on the past year. A few questions to help evaluate the past year from a financial perspective.
On a scale of 1-10, how well did your financial decisions reflect your personal values?
What was the best thing you spent money on last year?
When you think back on things you didn’t accomplish last year, what held you back? Was there a theme – time, energy, money?
The reason I believe these questions are important is because I want to make sure the financial plan that we are building together is helping you and your family to live the best version of your life. So when we meet for Spring meetings, I would love to hear your thoughts on these questions as it helps me connect the advice that I’m providing to ultimately what matters most to each of you.
I hope 2026 is off to a strong start!