At some point, it may be beneficial to stop contributing to these accounts.
IRS increases 401(k) contribution limits for 2026
The IRS will increase 401(k) and catch-up contribution limits for 2026, allowing workers to save up to $32,500 for retirement.
If you’re interested in retirement planning, you may know that when you quit your job, Social Security probably won’t be able to cover all of your expenses. These benefits may only amount to about 40% of your pre-retirement income, and you’ll likely need much more money than that to live comfortably. That’s where your savings come in handy.
You may have a tendency to try to max out your IRA or 401(k) each year. It’s easy to see why.
Traditional IRAs and 401(k)s come with some pretty sweet tax breaks. Your contributions will be paid on a pre-tax basis and a portion of your income will be protected from the IRS. Earnings in an IRA or 401(k) are also tax-deferred, so you don’t have to pay them to the IRS until you start taking distributions.
But there may come a time when it’s better to stop contributing to traditional retirement accounts and instead move your money elsewhere, or stop saving for retirement altogether.
Too much IRA or 401(k) savings can be a problem
You might think that there is no such thing as too much savings. In fact, having an IRA or 401(k) balance that is too large can cause problems.
Once you reach age 73 or 75, depending on your year of birth, you must begin taking required minimum distributions (RMDs) from your traditional retirement account. These RMDs not only increase your tax burden in retirement, but they can also have other consequences. These can help tax Social Security benefits and impose Medicare surcharges.
Blowing off RMDs is also not a good option. Doing so means risking a 25% penalty for RMDs you don’t take. But if you continue to fund your IRA or 401(k), your RMDs can become large.
Without diversification, early retirement may become impossible.
Another reason not to save too much in an IRA or 401(k): These accounts require you to wait until age 59 1/2 to remove funds or risk an early withdrawal penalty equal to 10% of your distributions. But if you consistently max out your IRA or 401(k), you may end up retiring sooner.
For example, starting at age 22, you put $1,500 a month into an uncapped 401(k) plan for 32 years. If your portfolio returns 8% annually, you could have more than $2.4 million by age 54, which is slightly below the stock market average.
You might want to retire at age 54, happy with $2.4 million and change. But if all of that money is in a traditional 401(k), you’ll typically want to consider early withdrawal penalties to withdraw it after a significant number of years.
That’s why, at some point, it may be beneficial to split your savings between traditional retirement accounts and tax brokered accounts. That way, you won’t have to worry about RMDs, which could give you more flexibility whether you retire early or retire more “on time.”
You may already have enough savings
The last thing to consider before continuing to fund your IRA or 401(k) is that you may already have plenty of savings. And if so, there may only be incremental benefits to continuing to save when the extra money could make the end of your career easier and more enjoyable.
Let’s say you want to retire at age 62, but by age 57 you have $3 million. It may be enough to cover your needs after you quit your job. Even if you don’t add another 10 yen, your $3 million could turn into $3.8 million in five years at a conservative 5% return.
Rather than forcing yourself to keep contributing to your IRA or 401(k), you might consider keeping the money you would have spent on yourself and using it to outsource home maintenance, buy a more comfortable car, or take a more fulfilling vacation instead of waiting until retirement to travel.
The larger your retirement nest egg, the more secure you will be able to finish your career. But that doesn’t mean it’s always beneficial to keep funding your IRA or 401(k). And even if you’re far from quitting your job, you may reach a point where it’s beneficial to quit.
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