How Much Should High Earners Put Into a 401(k) in California?

The 2026 401(k) limit is $24,500. For most California high earners, the answer to "should I max it?" is yes — but that's the beginning of the question, not the end of it.

We had a prospect last year — a physician in her early 40s, earning around $280,000 — who came to us after two years with a large national advisory platform. She was maxing her 401(k), had a taxable brokerage, figured she was doing everything right. She was doing something right. But she had no HSA, had never done a backdoor Roth, and had been leaving roughly $40,000 a year in unused tax-advantaged contribution space sitting on the floor.

Over three years, that's $120,000 that could have been growing tax-sheltered. Instead it was in a taxable account, generating dividend income taxed at California's 9.3% state rate on top of federal, every single year. Nobody had told her the other half of the strategy.

The 401(k) is the right first move. But for high earners in California, it's not the complete picture — and "just max it" is real oversimplification. Let's get into the actual numbers, what California changes about the math, and how to use every dollar of space available to you.

The 2026 Numbers You Need to Know

For 2026, the standard 401(k) employee contribution limit is $24,500 — up $1,000 from $23,500 in 2025. That applies whether you're contributing to a traditional (pre-tax) 401(k), a Roth 401(k), or a split of both.

If you're 50 or older, you can add a catch-up contribution of $8,000, for a total of $32,500. And here's a SECURE 2.0 wrinkle that affects a lot of our clients directly: if you're between ages 60 and 63, you qualify for a "super catch-up" of $11,250 instead — bringing your total to $35,750.

Figure 1 — 2026 401(k) contribution limits by age group. Source: IRS Notice 2025-67.

One more thing that changed starting January 1, 2026: if you earned more than $150,000 in FICA wages in 2025, your catch-up contributions must now be made on a Roth (after-tax) basis. This is a SECURE 2.0 provision that was delayed twice and finally took effect this year. It doesn't mean you can't make catch-up contributions — it just means they'll be post-tax if you're a high earner. Check with your plan administrator to make sure your plan has a Roth option enabled, because if it doesn't, you may not be able to make catch-up contributions at all until the plan is updated.

Why California Changes the Math

Here's what gets glossed over in most national financial content: California taxes are not the same math as everywhere else.

If you're a single filer earning $250,000, your federal marginal rate sits in the 32–35% range. Add California's 9.3% state rate (which applies to income above roughly $72,000 for single filers, and climbs to 10.3%, 11.3%, and 12.3% at higher levels), plus the 1.45% Medicare tax, and you're looking at a combined marginal rate of roughly 44% on a significant portion of your income. Married filing jointly gets you wider brackets, but the same principle applies.

Figure 2 — How federal, state, and Medicare taxes stack for a California single filer at $250K. Sources: IRS Rev. Proc. 2025-32; CA FTB 2025 Tax Rate Schedules.

What does that mean practically? Every pre-tax dollar you contribute to your 401(k) saves you that marginal rate in taxes today. At a combined marginal rate of ~44%, a $24,500 401(k) contribution generates roughly $10,780 in immediate tax savings. That's not a small number. It's one of the most efficient tax moves available to you as a California high earner.

"At a 44% combined marginal rate, maxing your 401(k) is essentially the IRS and California state government co-investing $10,780 in your retirement alongside you. Every year you don't do it, you're leaving that on the table."

There's a counterargument worth acknowledging: what if tax rates are lower in retirement? That's reasonable for some people. But for most California high earners we work with, retirement income from 401(k) withdrawals, Social Security, real estate, and potential business sale proceeds keeps them in meaningful tax brackets. The pre-tax deduction today often still wins — but the decision isn't universal, which is exactly why sequence matters.

Should You Always Max It? The Right Priority Order

Short answer: yes, max the 401(k) — but not at the expense of doing everything else in the right order.

• Capture the full employer match — first, always.

  This is the only guaranteed return in investing. If your employer matches 4% of salary and you only contribute 3%, you've left free money behind. Do this before anything else, no exceptions.

• Fund your HSA to the max, if you're eligible.

  The HSA is the only triple-tax-advantaged account that exists: pre-tax contributions, tax-free growth, tax-free withdrawals for medical expenses. For 2026, the limit is $4,400 for self-only or $8,750 for family coverage. This comes before maxing the 401(k) in priority order because it's genuinely superior per dollar of tax benefit.

• Max the 401(k) to $24,500 (or your age-appropriate limit).

  At California marginal rates, this is a ~44% immediate return on your tax savings. For most $200K+ earners in California, traditional pre-tax contributions win over Roth here — more on that in the section below.

• Backdoor Roth IRA — $7,500 per person in 2026.

  At $200K+ income you're phased out of direct Roth contributions, but you can still contribute $7,500 to a non-deductible traditional IRA and immediately convert it to Roth. That's $15,000 per couple per year going into a Roth account. In California, the conversion is taxable as ordinary income, so timing matters — but the long-term tax-free compounding value is significant.

• After-tax contributions + Mega Backdoor Roth (if your plan allows).

  The combined employee + employer 401(k) limit in 2026 is $72,000. If you've only contributed $24,500, there's up to $47,500 in additional space. Fill it with after-tax contributions, then convert to Roth inside the plan or roll to a Roth IRA. Not all plans allow this — check your plan documents or ask HR whether after-tax contributions and in-plan conversions are permitted.

• Taxable brokerage — with tax-efficient structure.

  Once you've exhausted tax-advantaged space, a taxable brokerage with careful asset location (index ETFs and growth assets that generate minimal annual income) is your next best option. This is also where tax-loss harvesting becomes a year-round discipline.

Figure 3 — Full annual tax-advantaged contribution space for California high earners (2026). Sources: IRS Notice 2025-67; Fidelity; Charles Schwab.

What "Maxing Your 401(k)" Actually Looks Like Over Time

Let's make this concrete. You're 38 years old, earning $250,000. You contribute the $24,500 maximum in 2026, and your employer contributes $8,000. That's $32,500 going into the account this year alone.

Compounded at a conservative 7% annualized return over 27 years, that single year's contribution grows to roughly $198,000 in today's dollars. Do that every year for 27 years, and the math becomes hard to ignore.

The California-specific piece that doesn't get talked about enough: where you're invested inside the 401(k) matters too. The 401(k) is the right place for income-generating assets — bonds, dividend stocks, REITs — precisely because the income is shielded from annual California state taxation. Growth ETFs that don't distribute much can live in your taxable account more efficiently.

The Catch-Up Contribution Rule Most High Earners Missed

We've had multiple conversations about this one in 2026. The new Roth catch-up requirement caught people off guard.

If you earned more than $150,000 in FICA wages from your employer in 2025, all of your 2026 catch-up contributions must go into a Roth 401(k) — not a traditional pre-tax account. The IRS delayed this provision twice (it was originally supposed to start in 2024) but it is now firmly in effect as of January 1, 2026.

For most high earners, Roth catch-up contributions are still valuable — especially if you expect to remain in California in retirement or if your income is still growing. But it requires action: your plan must offer a Roth 401(k) option. If it doesn't, you cannot make catch-up contributions at all until your employer adds the Roth feature. Check your summary plan description or ask HR.

What If You Can't Max It Right Now?

This comes up more than you'd think, even from people earning $200K+. California has a high cost of living. Mortgages are real. Private school tuition is real. Student loans are still real for a lot of physicians and dentists well into their 40s. Gross income and actual take-home cash flow are two very different numbers here.

If you genuinely can't max the 401(k) right now: capture the full employer match first, full stop. That is the highest-returning move available to you — a 50–100% immediate return depending on your match structure. Nothing else competes.

After that, contribute what you can and set a goal to increase your contribution rate by 1–2% every time you get a raise. A $20,000 raise doesn't need to go entirely to lifestyle. Routing half of it to your 401(k) is easy to execute precisely because you never adjust to spending money you never see.

One underused tactic:most plans let you change your contribution percentage mid-year. When a bonus hits, when RSUs vest, when a locum shift pays out — log in, bump the percentage for one or two pay periods, then bring it back down. Not elegant, but it works. Better than waiting until January to "really commit."

Traditional vs. Roth 401(k) for California High Earners

We'd rather give you a real take than a platitude on this one.

The case for traditional (pre-tax): If you're earning $200K+ in California, your marginal state rate is 9.3% or higher. A traditional 401(k) defers that. If you retire to Nevada, Arizona, or Texas — or simply lower your California income in retirement — you pay federal taxes on withdrawals but potentially zero or much lower state tax. That's a real arbitrage, and it's why most of our $200K–$400K clients lean traditional on their core 401(k) contributions.

The case for Roth 401(k): If you're in your early career, expect significant income growth, or plan to stay in California in retirement with high income, Roth locks in your current rate. Roth accounts also carry no Required Minimum Distributions, which matters for estate planning and retirement income flexibility. And if you're over 50 and earned more than $150,000 last year, your catch-up portion must be Roth anyway.

Our general take: For most people in the $200K–$400K range, use traditional pre-tax for the primary 401(k) contribution and build Roth exposure through the backdoor IRA and after-tax contributions. Stress-test this against your specific situation, retirement location assumptions, and income trajectory. It's not a rule — it's a starting framework.

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