How to Make Catch-Up Contributions to Your Retirement Savings

Key Takeaways

• Catch-up contributions are additional contributions that individuals over the age of 50 can make to their retirement savings accounts, going beyond the standard maximum limits set for such accounts.
• Catch-up contributions are beneficial for individuals who have reached the maximum annual contribution limits, allowing them to save more for retirement. Those looking to boost their retirement savings can also use catch-up contributions.
• Catch-up contribution rules differ based on the retirement account type. For IRAs, those over 50 can add $1,000 yearly. Workplace plans (401(k), 403(b), TSP) allow an extra $7,500. SIMPLE IRA permits an additional $3,500 for 50+ individuals.
• To catch up on contributions, individuals must instruct their retirement account provider or employer's HR/benefits department, depending on the account type.

As you get closer to retirement, you might want to start putting more money into your retirement savings. Luckily, after you turn 50 years old, the IRS allows you to make annual catch-up contributions to help accelerate your savings. Here's what to consider.

What Is a Catch-Up Contribution?

A catch-up contribution is an additional contribution you can make to your retirement savings accounts that goes beyond the standard maximum limits. Retirement accounts typically restrict how much you can contribute each year, but catch-up contributions are allowed for numerous types of accounts. However, this opportunity to boost your savings is only available to those over the age of 50.

Who Might Benefit From Catch-Up Contributions?

After age 50, it might make sense to start saving more for retirement. In many cases, workers are in their peak earning years around this time, so it's potentially easier to make substantial contributions. Catch-up contributions might make the most sense in the following cases:

• >You've hit the maximum: When maximum annual contribution limits prevent you from saving as much as you'd like, catch-ups allow you to save extra. If you're not yet at the maximum limit, it might not make sense (and it might not be possible) to make a catch-up contribution. If you still need to save more after utilizing catch-up contributions, you may want to evaluate other savings vehicles.
• You simply want to save more: If you've determined that you need to save more for your goals, catch-up contributions can allow you to put more money into retirement accounts. Those funds might grow tax-deferred, they could provide a current-year tax benefit, and they may potentially offer tax-free income in retirement. Consider asking a tax or legal professional how additional contributions might affect your current and future tax returns.

How Do Catch-Up Rules Work?

If you are at least 50 years old during a given year, you can make catch-up contributions for that year. That's true even if you reach age 50 in late December. The details depend on the type of account you have, so here are some specific examples:

• IRAs: Individual retirement accounts (IRAs), including Roth and traditional accounts, allow you to contribute up to $7,000 for 2024. But those who are at least 50 years old can contribute an additional $1,000 as a catch-up contribution.¹ You have until the due date for your tax return to complete your contribution.
• 401(k), 403(b) & Thrift Savings Plan (TSP): These workplace retirement plans limit your payroll contributions to $23,000 per year for 2024. However, if you're over age 50, you can contribute an additional $7,500.^2,3,4 Contributions must go through salary deferral, so you'll want to provide instructions to your employer if you want to save extra. You must make your catch-up contribution to these plans during the calendar year.
• SIMPLE IRA: With a Savings Incentive Match Plan for Employees (SIMPLE) IRA, you can make standard salary reduction contributions of $16,000 in 2024. Once you reach age 50, you can contribute an additional $3,500 as a catch-up contribution, and you have until the end of the year to make your contributions.

How to Make Catch-Up Contributions

If you decide to make catch-up contributions, you generally need to provide instructions to your provider. Here are a couple common scenarios:

• IRA accounts: Ask your IRA custodian how to indicate that you're making a catch-up contribution.
• Workplace retirement plans: To contribute extra to employer-sponsored plans, speak with your human resources or benefits department. You will likely have to provide authorization to make a catch-up contribution.

Decide If a Catch-Up Is Right for You

Catch-up contributions allow you to save more as you approach retirement. That may be helpful if you're hitting the maximum contribution limits and you want to use retirement accounts to save for your future. After reviewing your strategy with a financial representative, consider speaking with your benefits department or IRA provider to put your plan into action.

Sources

1. COLA increases for dollar limitations on benefits and contributions. https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions.
2. Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits.
3. Retirement Topics - 403(b) Contribution Limits. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-403b-contribution-limits.
4. Contribution limits. https://www.tsp.gov/making-contributions/contribution-limits/.