Catch-up Contributions at Age 50

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.

How to make Catch-Up Contributions?

• Catch-up Contributions to employer plans, such as 401(k)s, 403(b)s, 457(b)s, and SIMPLE IRAs are withheld from your regular paycheck -- notify your employer that you wish to increase your contribution amount
• Catch-up Contributions to traditional and Roth IRAs are made by the investor directly into their account, just like standard contributions -- make your current year Catch-up Contributions to traditional and Roth IRAs 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
• A 401(k) investor in the 35% tax bracket contributing the full $7,500 in Catch-Up Contributions would save/defer $2,625 in taxes
• The graph below compares the account values of an investor who contributes only $23,000 per year to a 401(k) from age 50-65 versus an investor who also contributes the additional $7,500 catch-up amount each year

To note: Illustration assumes contributions of $23,000 are made annually from age 50 to age 65, plus an additional $7,500 per year in the catch-up scenario. Contributions are spread throughout the year. Accounts grow at the rate of annual return indicated on the x-axis. Values shown are pre-tax and before fees. Contributions made ratably over the course of each year. This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

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 or a member of my team if you have questions.

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. 

This content is for general informational and educational purposes only and does not represent investment, tax, or legal advice.

You should not act or refrain from acting on the basis of this content alone without first seeking advice from your tax and/or legal advisors.