Need to Know Tax › Retirement and seniors
Retirement savers
Tax breaks for retirement savers
For anyone still working and putting money away, from a first job to the last few years before retirement. The limits went up again for 2026, higher earners’ catch-ups now have to go Roth, and one credit goes unclaimed year after year.
The tax code pays people to save for retirement, in two ways. It lets you put money away before tax, so the saving reduces this year’s bill, or after tax, so the withdrawals are free later. And for lower-income workers it adds a credit on top. The amounts are set each year, and for 2026 nearly all of them went up.
| Under 50 | 50 and older | |
|---|---|---|
| 401(k), 403(b), most 457 plans | $24,500 | $32,500 |
| Same plans, ages 60 to 63 (the larger catch-up) | — | $35,750 |
| Traditional or Roth IRA | $7,500 | $8,600 |
| SIMPLE IRA (verify 2026 figures) | $17,000 | $20,500 |
| Saver’s Credit, maximum | $1,000 single, $2,000 joint | |
The workplace limit and the IRA limit are separate; someone with both can use both. Employer matching does not count against your own limit.
How much you can put in
For 2026 you can put up to $24,500 into a 401(k), 403(b), or most 457 plans, plus $8,000 more at age 50 or older. Ages 60 to 63 get a larger catch-up of $11,250 instead. The IRA limit is $7,500, plus $1,100 at 50 or older. The IRA contribution can be made until April 15, 2027, for the 2026 year; workplace contributions have to come out of 2026 paychecks.
Catch-ups go Roth for higher earners. Starting in 2026, if you are 50 or older and your Social Security wages from that employer the year before were more than $150,000 (verify figure), your catch-up contribution must go into the Roth side of the plan: no deduction now, tax-free later. If the plan has no Roth option, no catch-up at all. The regular $24,500 can still go pre-tax.
Traditional or Roth
Traditional contributions reduce your taxable income now, and withdrawals are taxed later. Roth contributions are taxed now and come out tax-free. The question is which rate is higher: the one you pay today or the one you expect in retirement. A young worker in the 12% bracket often does better with Roth. Someone in the 24% bracket in their peak earning years usually does better with the deduction now, then converts to Roth in the lower-income years after retiring. People who expect to retire in Colorado should remember the state’s 4.40% applies to traditional withdrawals too, less the retirement subtraction.
Worked example: the same $10,000, three accounts
A married couple in the 22% federal bracket puts $10,000 of salary away for retirement.
| Traditional 401(k) | Roth 401(k) | HSA (if eligible) | |
|---|---|---|---|
| Federal tax saved this year at 22% | $2,200 | $0 | $2,200 |
| Colorado tax saved this year at 4.40% | $440 | $0 | $440 |
| Social Security and Medicare tax saved (7.65%) | $0 | $0 | $765 if through payroll |
| Out of pocket this year | $7,360 | $10,000 | $6,595 |
| Taxed coming out | Yes, as income | No | No, for medical costs |
| Best when | Today’s bracket is higher than retirement’s | Today’s bracket is lower | Always, up to the limit, for anyone with a high-deductible plan |
The usual order for a household with a high-deductible plan: the 401(k) up to the full employer match, then the HSA to its limit, then the rest of the 401(k) or an IRA, traditional or Roth depending on the bracket.
One catch for IRAs. If you or your spouse has a workplace plan, your traditional IRA deduction phases out at higher incomes: for 2026, between $81,000 and $91,000 of modified AGI for a single filer covered by a plan, $129,000 to $149,000 for a covered spouse on a joint return, and $242,000 to $252,000 for a spouse who is not covered but whose partner is (verify all three ranges). The contribution is still allowed; it just is not deductible past the limit, and a non-deductible contribution has to be tracked on Form 8606 so it is not taxed again on the way out. The Roth IRA has its own income limits, covered in Roth IRAs and the backdoor Roth.
The credit people don’t claim
Low- and moderate-income savers can also claim the Saver’s Credit, worth up to $1,000 ($2,000 on a joint return), for income up to $40,250 single or $80,500 joint in 2026. It is a credit, not a deduction: it comes straight off the tax. It applies to contributions to a 401(k), an IRA, a Roth, and most other retirement plans, so a worker putting 5% into a workplace plan may already qualify without doing anything else. The credit is 50%, 20% or 10% of the first $2,000 contributed, depending on income (verify tiers). It is nonrefundable, so it helps only to the extent there is tax to reduce (verify). Full-time students and anyone claimed as a dependent are excluded (verify).
Worked example: a 24-year-old’s first 401(k)
| Wages | $38,000 |
| Put into the 401(k) (5%, to get the match) | $1,900 |
| Federal tax saved by the deduction at 12% | $228 |
| Saver’s Credit (income under the lowest tier line, single; verify) | 10% to 50% of $1,900, depending on the tier |
| Employer match at 50% | $950 |
| Net cost of putting $2,850 into the account | about $1,300 to $1,500 |
The Saver’s Credit is computed only if someone enters the contribution on Form 8880; software does not pull it from the W-2 by itself. In 2027 it is replaced by the Saver’s Match, up to $1,000 deposited directly into the account rather than taken off the tax.
Behind the scenes
Box 13 of the W-2 has a small checkbox labeled “Retirement plan.” If it is checked, the client is covered by a workplace plan and the traditional IRA deduction is subject to the income phase-out; if it is blank, the full deduction is available at any income. Payroll departments get this box wrong in both directions. A preparer looks at the box, then at Box 12 for a code D or similar contribution, and if the two disagree, asks the client before deciding whether the IRA is deductible. The same Box 12 amount also feeds the Saver’s Credit, which the software computes only if someone enters it.
The Colorado side
Colorado starts from federal taxable income, so a deductible contribution reduces the state tax too, at the flat 4.40%. A $10,000 401(k) contribution saves $440 of Colorado tax on top of the federal savings. Roth contributions save nothing now in Colorado either, but qualified Roth withdrawals are never Colorado income, and traditional withdrawals in retirement are sheltered only up to the $24,000 per-person subtraction after Social Security. Colorado has no state retirement credit of its own, and the Saver’s Credit does not flow through. Colorado employers without a plan must enroll workers in the state’s Colorado SecureSavings Roth IRA program (verify), which counts for the Saver’s Credit like any other IRA.
What to bring your preparer
- Your W-2, for Box 12 (codes D, E, AA, BB and similar) and the Box 13 “Retirement plan” checkbox
- Form 5498 for any IRA, or a note of IRA contributions made and which year they were for
- Whether the IRA contribution was meant to be deductible, Roth, or non-deductible
- Your spouse’s plan coverage, since it affects your IRA deduction
- If you are 50 or older and earn over $150,000: whether your catch-up went to the Roth side
- For the Saver’s Credit: whether you were a full-time student or anyone’s dependent during the year
Questions people ask
Can I contribute to both a 401(k) and an IRA?
Yes. The limits are separate. The only interaction is that having the workplace plan can make the IRA contribution non-deductible at higher incomes; a Roth IRA or a non-deductible IRA is still allowed.
I’m 61. How much can I put in my 401(k)?
$35,750 for 2026: the $24,500 base plus the $11,250 catch-up for ages 60 to 63. At 64 it drops back to $32,500.
My spouse doesn’t work. Can she have an IRA?
Yes. A spousal IRA lets a non-working spouse contribute up to the full limit based on the working spouse’s earned income, on a joint return.
Does my employer’s match count toward my $24,500?
No. Your own deferrals count toward $24,500; the match is on top, within a separate overall limit that most people never reach.
I contributed to a Roth IRA and then my income went over the limit. What now?
Withdraw the excess and its earnings before the return’s due date, or recharacterize it as a traditional contribution (and then, if you like, convert it). Left in place, it draws a 6% penalty every year.
I’m self-employed. SEP or solo 401(k)?
A SEP allows roughly 20% of net self-employment earnings, up to the annual cap, and can be funded as late as the extended due date of the return. A solo 401(k) allows an employee deferral ($24,500 for 2026, plus the catch-up) on top of the same employer percentage, so it usually permits more at lower incomes, and it can have a Roth side. It has to be opened by December 31 to take deferrals for the year.
What if I need the money before 59½?
Withdrawals before 59½ generally owe a 10% additional tax on top of income tax. Exceptions include disability, up to $10,000 for a first home (IRAs), higher education (IRAs), certain emergencies, and leaving an employer at 55 or older (workplace plans only). Required minimum distributions start at 73, or 75 for anyone born in 1960 or later.
Look at Box 13 of the W-2
The “Retirement plan” checkbox decides whether an IRA contribution is deductible, and payroll departments get it wrong in both directions. If the box and your actual plan participation disagree, say so before the return is filed.