Your 50th birthday is an important retirement milestone. At this age, you qualify for catch-up contributions, an extra amount that you’re legally allowed to contribute to your retirement accounts.
They allow people who may have gotten a late start on their retirement savings or who have had to delay their contributions for some reason to catch up.
To understand how consequential catch-up contributions can be, consider someone who starts saving for retirement at age 50 by maximizing their 401(k) with catch-up contributions could amass over $1.3 million by age 70 (assuming an 8% annual return), according to research by the American Association of Individual Investors.
These additional dollars, saved in a tax-advantaged retirement account, such as a 401(k) or IRA, can help you sprint toward the finish line.
Catch-up contributions for 401(k)s and other retirement plans
The catch-up contribution limit for employees aged 50 and older in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan is $7,500 for 2024.
The 2024 contribution limit for 401(k)s and other retirement plans is $23,000, which means participants who are 50 and older can contribute up to $30,500.
A note for higher earners:
A provision enacted via the Secure 2.0 Act mandates higher earners to make catch-up contributions only in after-tax Roth accounts, starting in 2026. This change applies to employees making catch-up deposits to 401(k), 403(b) or 457(b) plans who earned more than $145,000 from a single company the prior year.
Catch-up contributions for IRAs
The 2024 IRA catch‑up contribution limit for individuals aged 50 and over is $1,000. Therefore, the 2024 annual IRA contribution limit is $8,000 for savers aged 50 or older, as the contribution limit for IRAs is $7,000.
When can you start making catch-up contributions?
You can start making catch-up contributions in the calendar year you turn 50. For example, if you turn 50 on July 1, 2024, you can begin making catch-up contributions starting January 1, 2024.
Things to consider when making catch-up contributions
Of course, putting some extra money aside for retirement may come easy. A savings target of $30,000 per year in a retirement plan is a lofty goal for just about anyone.
So, here are some additional things to consider when making catch-up contributions:
- Make sure you have enough money to cover your living expenses and other financial obligations.
- Consider your overall retirement savings goals – how much do you really need to save?
- Make sure you know the contribution limits for the type of retirement plan you have.
- Consider applying any raises, bonuses or tax refunds to your retirement accounts.
- Talk to a financial adviser to get personalized advice about whether catch-up contributions are right for you.
Bottom line
Making catch-up contributions can be a great way to boost your retirement savings. If you are eligible, we encourage you to take advantage of this opportunity.
If you want a complimentary retirement plan review or wish to discuss personalized strategies to maximize your retirement savings, schedule a consultation with an Advance Capital Management financial adviser.
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