Retirement Retirement Planning

7 Situations Where Putting More Money Into a 401(k) in 2026 Could Backfire

These are situations where contributing more to your 401(k) could hurt you.

By Catherine Collins

Edited by Laura Hohenstein

Updated Dec. 31, 2025

For many workers in the United States, maxing out a 401(k) retirement plan is a major financial goal. After all, 401(k)s are one of the most common retirement savings vehicles. Investing in them can offer some tax benefits and other perks, especially if employers provide a match.

However, sometimes life circumstances mean people won't be able to maximize their 401(k)s, and that's okay. Every year and each season of life brings specific challenges, and not everyone can increase their contributions year after year. Here are some situations where putting more money into a 401(k) can actually backfire.

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Needing money for upcoming expenses

If you need money for an upcoming expense, that's a valid reason for keeping more of your money in cash. Sometimes households need to cover medical treatments, pay for a child's wedding, support aging parents, or pay for college tuition.

If that's the case for you, and you're having trouble affording everyday expenses due to inflation, it might not make sense to put extra money into your 401(k) this year. Ultimately, the goal should be to maintain good cash flow in your monthly budget so you don't go into debt or have to take out a 401(k) loan due to an emergency.

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Prioritizing paying off high-interest debt

The most recent data from TransUnion shows that collectively, people in the United States have outstanding credit card balances of over $1 trillion. Some people who have credit card debt, which carries an average interest rate of over 21% according to the Federal Reserve Bank of St. Louis, may choose to prioritize paying it off rather than making extra 401(k) contributions.

Of course, each person's situation will be different, with varying goals, income levels, and retirement projections. However, in general, high-interest debt takes up cash flow. That's why some people might prioritize increasing cash flow over making extra 401(k) contributions. Ultimately, that decision is up to the individual, and if you're having trouble deciding, consult a financial advisor for help.

New 401(k) rules will affect taxes

In 2026, the IRS changed an important rule for individuals over age 50 who earned more than $150,000 a year. If those people want to make catch-up contributions, they must treat those contributions as after-tax Roth contributions.

This is different from previous years, when people aged 50 and up could enjoy the tax advantages of making an extra pre-tax contribution. Because of this, some high earners may choose to put their extra money elsewhere. If this is you, check with an accountant or other tax professional to see how to best maximize your personal tax savings.

Extreme market volatility

There are times when the economy goes through extreme market volatility. Depending on where people are in their retirement journey, some might not choose to make extra contributions to their 401(k)s during this time.

Younger investors who have a longer time horizon can typically weather the ups and downs of the market. However, others who are closer to retirement or who are more risk-averse might choose to keep more cash on hand during turbulent times.

Planning to retire soon

If people are planning to retire soon, it's a good idea to speak with a financial advisor to see whether or not they are on track. Some financial advisors might suggest that you make extra contributions, while others might suggest that you put extra money towards different goals. Everyone's retirement path will be highly individual, and that's why it's so important to get advice when you're nearing your retirement age.

No employer match

If your company doesn't have an employer match, it may make sense to add extra retirement contributions to different tax vehicles, such as an HSA or an IRA.

Most financial advice suggests investing in a 401(k) to get an employer match (which is essentially free money). However, if your employer doesn't offer one, there may be other, more beneficial retirement accounts, depending on how much you earn and how much extra you have to contribute.

Limited 401(k) options

Not all 401(k)s are created equally. Some 401(k)s have a large array of investment options, while others are limited to high-cost funds. If your 401(k) only has a few investment options with high expense ratios, it may make sense to put extra money towards a different financial goal. However, that will depend on your personal situation, age, and retirement plans.

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Bottom line

Although typical financial advice says to max out your 401(k) every year if possible, there are specific situations where that advice might not fit your personal situation. Plus, a 401(k) is not the only retirement vehicle, and it was never meant to be the only retirement account that you have. So, if any of the scenarios above sound familiar and you want to retire comfortably, it's likely time to contact a financial planner to get help creating a retirement plan customized to you.

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