The 2026 Retirement Limits: A Strategic Guide to Asset Protection and the Means Test

If you are looking to maximize your contributions under the new 2026 401k and IRA limits for asset protection, you must understand that these figures can affect your bankruptcy case.

While the IRS has officially raised contribution caps for retirement accounts in 2026, many times, homeowners facing foreclosure or bankruptcy view these accounts as subject to a judgment lien or a freezing of these accounts by creditors.

Retirement accounts are safe unless the funds are transferred to non-exempt accounts. However, from the perspective of a bankruptcy law attorney, is that each bankruptcy district is unique when it comes to certain issues, such as using IRA deductions for purposes of the “Means Test.”

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Key Takeaways: 2026 Limits for Retirement Accounts & Asset Protection

• Higher Thresholds for 2026: For 2026, the IRS has increased contributions to retirement accounts. The limits for 401(k), 403(b), and 457 plans have increased to $24,500, while the IRA limit has risen to $7,500.
• The Means Test Issue: Maximizing 2026 401k and IRA limits for asset protection can lower your “Current Monthly Income” (CMI), potentially qualifying a debtor who exceeds the median income of their state for a Chapter 7 bankruptcy.
• Jurisdictional Issues: Whether voluntary contributions are considered “reasonably necessary” varies per district. Some districts allow full deductions for retirement savings, while others view them as a “luxury” that should be paid to creditors, forcing debtors into Chapter 13.
• The Risk of Commingling Funds: Retirement funds only retain their exempt status while held within the qualified account. Moving funds to a checking account can cause them to lose protection under 11 U.S.C. §522.
• Catch-Up Strategy: For those 50 and older, the increased $8,000 catch-up (and the $11,250 “super catch-up” for ages 60–63) offers a massive window to protect assets, including qualifying for Chapter 7 bankruptcy depending on the district.

The IRS 2026 Maximum Contribution Levels

The Internal Revenue Service (IRS) has released the cost-of-living adjustments for 2026, increasing the amounts that can be invested into their retirement accounts.

Account Type	2026 Contribution Limit	Catch-Up (Age 50+)	Catch-Up (Age 60-63)
401(k), 403(b), 457	$24,500	$8,000	$11,250
Traditional/Roth IRA	$7,500	$1,100	N/A

Professor’s Note: The “Super Catch-Up” for ages 60–63 (introduced by SECURE 2.0) could be a powerful tool in 2026 for older debtors to aggressively reduce their “Current Monthly Income” (CMI) when filing for bankruptcy.

The “Necessary Expense” Deduction for Retirement Accounts: Districts Are Split

One of the most contentious issues in 2026 bankruptcy law is whether these voluntary retirement account contributions are “reasonably necessary” expenses. If you are an above-median debtor (failing the Means Test) trying to qualify for a Chapter 7, these retirement account deductions could be the difference between qualifying for Chapter 7 bankruptcy or being forced into Chapter 13.

The Liberal View of the 9th Circuit: Following cases like In re Saldana, some jurisdictions, such as the 9^th Circuit, permit debtors to exclude voluntary retirement contributions from their disposable income calculation entirely. These jurisdictions interpreted the statute’s plain language as a congressional mandate to encourage retirement savings, even at the expense of creditors.

When writing my textbook, Consumer Bankruptcy Law, I realized, in discussing Schedule I of the bankruptcy petition, that this might be an issue for other districts. In the Southern District of Florida, I never faced a trustee’s objection to deductions on Schedule I or the Means Test. However, in researching other districts, I realized that bankruptcy trustees commonly object.

The Restrictive View: In other districts, Bankruptcy Trustees argue that voluntary contributions are a “luxury” that should instead be paid to unsecured creditors. In these courts, unless the contribution is mandatory (a condition of employment), it may be added back to your income, potentially disqualifying you from a Chapter 7 or increasing your Chapter 13 plan payment.

Professor’s Note: A common theme in my textbook that has carried over to Bankruptcy.blog is “know your district.” This means researching not only the local rules and procedures, but also issues such as which deductions are allowed in your district.

The Professor’s Toolkit

The Means Test figures are updated twice annually for each state. The last update increased the average salary, which could help you qualify for Chapter 7 bankruptcy. For the latest figures on the Means Test, read this prior article.

For information on completing Official Bankruptcy Schedule I: Your Income, please read this article. The remaining parts of the bankruptcy petition can be found here, including detailed videos.

Please refer to my comprehensive 2026  Guide to Chapter 7 Liquidation and Chapter 13 Guide in 2026.

The “Checking Account Trap”: Losing Your Exempt Status

A common mistake with debtors and retirement accounts could cost them thousands of dollars. Retirement funds are only “safe” while they remain inside the retirement account. Once those funds are withdrawn or transferred to a non-exempt bank account, such as a checking or savings account, the protected status is lost. under 11 U.S.C. §522.

Commingling: Once those 401(k) funds hit your checking account and mix with your wages, they are no longer “retirement funds” in the eyes of many Trustees; they are simply “cash on hand” under Schedule C exemptions.

The Expensive Result: I have had clients who withdrew their IRA funds only to have the Bankruptcy Trustee seize the amount withdrawn, as it was no longer in a tax-deferred/exempt account.

The Professor’s Conclusion

Knowing your district is key, whether as a bankruptcy law attorney or self-represented debtor. If you can maximize your contributions in Schedule I of the petition to pass the Means Test, you might qualify for Chapter 7 bankruptcy. But regardless of how your district handles deductions for retirement accounts, withdrawing the funds from a protected account will never be exempt!

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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