Broker Check

What to know about Catch-up Contributions at age 50

January 25, 2024

Your 50th birthday is a big one! Please consider a move that other savvy investors like you are making at this time: Retirement Account Catch-Up Contributions.

What are Catch-Up Contributions?

When U.S. taxpayers reach the age of 50, they are allowed to make contributions above the standard contribution limits into certain retirement accounts, regardless of how much they have saved already.

  • Who is eligible? – US taxpayers aged 50 and older
  • What account types are eligible? – 401(k) / 403(b) / 457(b), Simple IRAs, as well as Traditional and Roth IRAs
  • Catch-up Contribution limits? – An extra $7,500 per year for 401(k) / 403(b) / 457(b) plans, $3,500 per year for Simple IRAs, and $1,000 per year for Traditional and Roth IRAs
  • How to make Catch-up Contributions – For employer plans, such as 401(k)s, 403(b)s, 457(b)s, and SIMPLE IRAs, notify your employer that you wish to increase your contribution amount. For Traditional and Roth IRAs, make your current year catch-up contributions by the due date of your income tax return (usually April 15 of the following year, no extensions). You can make catch-up contributions at any time during the calendar year in which you will turn 50, even if you have not yet reached your 50th birthday

Why make Catch-Up Contributions?

Generally speaking, Catch-up Contributions in Traditional accounts allow you to increase the amount of your tax-deferred retirement savings while also reducing your current tax liability by deferring more pre-tax income into tax-advantaged accounts. When made on an after-tax basis to a Roth account, catch-up contributions increase your potential tax-free income from that account in the future. As with standard contributions, catch-up contributions in Roth accounts grow tax-free, and grow on a tax-deferred basis in Traditional accounts. For example, a 50-year-old US taxpayer that invests an extra $7,500 per year in their 401(k) between the ages 50-65 will increase the value of their 401(k) by an additional $198,000 by the time they reach 65, assuming annual returns of 6% (before fees and taxes).

Next Steps

You have come a long way. Let’s make sure you take advantage of all opportunities to save for retirement in tax-advantaged ways. You may also want to consult with your accountant or other tax advisors.

I hope you find this information helpful, do not hesitate to contact me if you have questions. I will reach out soon to discuss this further.

Once you turn 73, you must take required minimum distributions (RMDs) from your 401(k) or other defined contribution plans in most cases. Withdrawals from these plans are taxed as ordinary income and may be subject to a 10% federal income tax penalty if taken before age 59½.