A traditional 401(k) caps every participant at the same dollar amount, so highly compensated employees and owners can defer a far smaller percentage of their income than the rest of the workforce. Selective, employer-funded arrangements outside the qualified plan may help close that gap.
An owner described the problem this way: the company offers health insurance, a strong culture, generous PTO, and a 401(k) with a match. The best people still leave.
Nothing on that list is wrong. It just no longer distinguishes the company. Health coverage, culture, flexibility, and a retirement plan are what a candidate expects before the first conversation, not what closes one.
Key Takeaways
- The 2026 401(k) deferral limit is $24,500, plus an $8,000 catch-up at age 50 and $11,250 at ages 60 through 63.
- That flat cap is about 10 percent of pay at $245,000 and under 5 percent at $500,000.
- Median private-sector tenure was 3.5 years in January 2024, so retention has to be designed, not assumed.
- Evaluate any supplemental structure with your CPA, attorney, and advisor.
How does a traditional 401(k) disadvantage highly compensated employees?
The cap is a dollar figure, not a percentage. That single design choice produces very different outcomes at different income levels.
Now apply the same cap to an executive or an owner. At roughly $245,000 of income, maxing out the deferral is about ten percent of pay. At $500,000 it is under five percent.
The people with the most capacity to save have the least ability to use the plan in proportion to their income.
That gap is not a flaw in anyone's intent. It is a structural feature of a plan built to pass nondiscrimination testing across an entire workforce. Learn more about tax-aware planning for business owners.
What are the 2026 limits?
| Limit | 2026 amount |
|---|---|
| Elective deferral | $24,500 |
| Catch-up, age 50+ | $8,000 |
| Catch-up, ages 60 to 63 | $11,250 |
| Total additions, 415(c) | $72,000 |
Evaluating your current plan?
A private conversation can help you assess what your plan does and does not accomplish for the people you cannot afford to lose.
Speak with a Prevail Advisor