The Importance of Long-Term 401(k) Savings

Published in the January 2026 Edition
By Woody Derricks, CFP®, Accredited Domestic Partnership Advisor

Saving for retirement is one of the most important financial decisions many Americans will make. A workplace plan, such as a 401(k), 403(b), or TSP, offers a powerful way to save—and to take advantage of tax-deferral, employer matching, and the long-term power of compounding. Yet, despite the advantages, many workers do not maximize their 401(k) contributions. Here’s what you need to know about why these plans matter, how the contribution rules are evolving, and what pitfalls to avoid.

Why your 401(k) is critical

Tax-advantaged savings: Contributions to a traditional 401(k) reduce your taxable income today and grow tax-deferred. Over decades, that tax-deferral plus compounding can make a big difference.
Employer match = free money: Many employers match a portion of your salary that you contribute. If your employer does, failing to contribute enough to get the full match is essentially leaving money on the table.
Compound growth time horizon: The earlier you begin and consistently contribute, the more your savings have time to grow. Even a few additional percentages of salary can translate into substantially more at retirement.
Savings gap remains large: According to the Vanguard “How America Saves 2025” report, during 2024 just 14 % of participants contributed the full statutory maximum to their 401(k) plans. That means a large majority are not saving at the maximal allowable rate—and may risk falling short of their retirement goals.

2026 Contribution Limits
It’s helpful to know what the legal contribution caps will be for 2026 so you can plan accordingly:

For 2026 the elective deferral limit (employee contribution) for most 401(k), 403(b) and similar plans will rise to $24,500.
For participants age 50 and older, the catch-up contribution limit will increase to $8,000 in 2026—so in total they could defer up to $24,500 + $8,000 = $32,500 (before employer contributions).
For certain participants ages 60-63 who qualify for the “super catch-up” (under the SECURE Act 2.0) the total may be higher (about $35,750).
New rule for higher earners: Beginning in 2026, if a participant is age 50+ and earned more than $145,000 in the prior year in W-2 wages from that employer, then any catch-up contributions must be made on a Roth (after-tax) basis (not pre-tax).

This means higher earners lose the immediate tax deduction for that catch-up portion (though the funds grow tax-free once qualified).
Note: The threshold is ~$145,000 and indexed for inflation.

Why the 14% “maxed-out” statistic is telling
That just 14% of plan participants contributed the maximum in 2024 (per Vanguard’s estimate) reflects important realities:

Contribution limits are high: in 2024 the statutory maximum was ~$23,000 for most participants. That’s a large savings target for many.
Many workers may have competing priorities (emergency savings, debt, home purchase, children’s expenses) so they may not allocate the full amount.
Those who do hit the maximum tend to be older, higher-income, longer-tenure employees with higher account balances.
The fact that only a small share reach the cap suggests there is ample room for many to increase savings.

Beware: Timing your contributions the “wrong” way
One common caution: if your employer matches contributions per pay period (rather than as a lump sum at year-end), then front-loading your 401(k) contributions (for example, using up your contribution limit early in the year) may reduce or eliminate your employer-match on later paychecks.

For example, if you elect to defer at a high percentage early in the year and hit the limit by June, your employer might stop matching in July–December because you’re no longer deferring contributions.
The result: you may miss some portion of employer matching funds.
Safer strategy: check how your employer match works (per check vs. annual) and consider spreading your contributions evenly across the year—ensuring you capture every match dollar.

Practical steps for you

Contribute at least enough to get the full employer match – that’s the first priority.
Then, move toward maxing the deferral limit—if your budget allows. Even if you cannot hit the full cap, increasing your rate a percentage point or two matters.
Plan the timing of your contributions across pay periods to ensure you don’t miss employer match dollars.
If you’re age 50+ and especially if you earn more than ~$145,000 (and your employer offers a Roth 401(k)), understand the Roth catch-up rule for 2026: you may want to plan (or allocate) accordingly.
Don’t ignore emergency savings or high-interest debt. A 401(k) is important—but it’s part of a broader financial plan.

Why this matters long-term
Maximizing 401(k) savings offers the potential of tax-deferred (or tax-free, for Roth) growth, the discipline of automatic payroll deferral, and the “free” boost of employer match. Over 20-30 years, especially if you start early, that can make a meaningful difference in whether you can sustain your desired lifestyle in retirement. According to Vanguard’s research, workers with access to defined contribution plans (like 401(k)s) are significantly more likely to be on track for retirement success.

In summary
Your 401(k) is one of the best tools you have to save for retirement. The contribution limits for 2026 give you a larger ceiling: $24,500 for most participants, $32,500 for age 50+ (with catch-up), and more for ages 60-63. If you’ll earn more than ~$145,000 and are age 50+, you’ll need to make your catch-up contributions as Roth starting 2026. While it’s great to “max out” the plan, don’t rush so fast that you lose employer match dollars by exhausting your deferral early in the year. Make sure your contribution strategy aligns with how your employer’s match works. And if you’re not yet able to hit the maximum, increasing your savings rate, capturing the employer match, and staying consistent will still put you on a stronger path.

Investment advisory services are offered by Partnership Wealth Management, a Securities and Exchange Commission Registered Investment Advisor. The commentary presented herein contains the opinions of the firm, and this information should not be relied upon for tax purposes and is based upon sources believed to be reliable. No guarantee is made to the completeness or accuracy of this information. Partnership Wealth Management shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses, or opinions contained herein or their use, which do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes, and therefore are not an offer to buy or sell a security. Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may even become valueless. This information has not been tailored to suit any individual.

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