Taking advantage of catch-up contributions

Diligently saving throughout your life is one of the best ways to achieve financial security in retirement, no matter how long it lasts. Investing part of your paycheck early in your career can help you slowly build up your assets and take advantage of potential long-term growth in the market.

However, if expenses like paying off student loans or raising a family held your savings back during the first phase of your career, you’re not alone. Taking advantage of catch-up contributions can help you build your retirement accounts during your 50s and beyond, so you can get back on track.

What is a catch-up contribution?

Catch-up contributions are increased limits on retirement accounts for individuals ages 50 and older. The IRS has separate catch-up provisions that apply to both employer sponsored plans – including 401(k)s and 403(b)s – as well as IRAs.

The higher contribution allowance enables you to build up your tax-advantaged accounts more rapidly in the latter stages of your career. The ability to boost your contributions as you get older can be particularly helpful if, for any reason, you weren’t able to save as much as you had hoped in previous years.

A separate catch-up provision applies to health savings accounts (HSAs), which allows you to make contributions if you have a high-deductible health plan. Starting in the year you reach 55, you can use the catch-up feature to increase your annual contributions. Because healthcare expenses can increase substantially when you get older, HSA assets can play an important role in maintaining your financial wellbeing in retirement. 

When can I make a catch-up contribution?

You can make catch-up contributions to a 401(k) or other qualified employer sponsored plan any time during the calendar year. In most cases, you’ll have to log into your account through the plan administrator’s website to adjust your deferral. If you’re age 50 or older, the site should automatically enable you to make contributions up to the annual catch-up limit.

If you have an IRA, however, you can make catch-up contributions up until the tax filing deadline. In most years, that means you have until April 15 to put money into your IRA and have it count toward the previous year’s allowance.

Catch-up contribution limits for 2024

The IRS periodically adjusts both the standard contribution limit and catch-up limit for qualified retirement accounts and HSAs. The catch-up contribution limits for 2024 are:

• 401(k) and 401(b) catch up limits: $7,500 for employer-sponsored plans like a 401(k) or 403(b), for a total contribution limit of $30,500 (if you’ve had the same 403(b) plan at work for 15 years, you may be eligible for an additional $3,000 annual election regardless of age – up to a total of $15,000).
• IRA catch up limits: $1,000 for traditional and Roth IRAs (individual retirement account), for a total contribution limit of $8,000.
• Simple IRA catch up limits: $3,500 for SIMPLE IRAs, for a total contribution limit of $19,500.
• HSA catch up limits: $1,000 for HSAs per account holder, for a total contribution limit of $5,150 for individual coverage and $9,300 for family coverage.

The increased limit applies to your total contributions for each account category. Suppose, for example, that you’re age 50 or older and contributed $5,000 to a traditional (pre-tax) IRA this year. With the catch-up contribution, you can put an additional $3,000 into a separate IRA – whether it’s a traditional or Roth account – for a total IRA contribution of $8,000 for the year.

How does the SECURE Act 2.0 affect catch-up contributions?

The SECURE Act 2.0, which was passed in 2022, includes several changes aimed at helping Americans save for retirement. The legislation includes a couple key provisions that affect catch-up contributions:

• As of 2024, the $1,000 limit on catch-up contributions to a traditional and Roth IRA will be indexed for inflation, potentially increasing this amount going forward.
• Beginning in 2025, adults between the ages of 60 and 63 will be able to make additional catch-up contributions to an employer sponsored plan. Individuals in this age range will be allowed to contribute the greater of $10,000 (indexed for inflation) or 150% of the standard catch-up contribution limit – up from the current $7,500 limit for catch-up contributions.
• Starting in 2026, those age 50 or older who earn more than $145,000 in the previous calendar year will have to make catch-up contributions to a Roth workplace plan. The income threshold for this requirement will be adjusted for inflation in subsequent years.

Are you financially ready for retirement?

If it turns out that your retirement fund is below what you anticipate needing in retirement, taking advantage of catch-up contributions can be a big boost to your savings. As you get closer to retirement, a financial professional can help you review or update your investment strategy to help ensure that you’re ready for this exciting next stage of life.

Learn how we can help you plan for retirement.