What are catch-up contributions, and what are the limits?

Who doesn’t want to have as much money as possible to enjoy their retirement?

Catch-up contributions to your retirement savings accounts could be a good way to save more money in your nest egg than the standard amount the IRS or your plan typically allows. 

But there are age requirements. And different types of retirement plans have different rules and annual catch-up contribution limits. Read on to learn more about catch-up contributions for retirement savings accounts.

Key takeaways

• Catch-up contributions may help workers age 50 and older save more money for retirement.
• They apply to the likes of 401(k) plans, individual retirement accounts (IRAs), 403(b) plans, governmental 457(b) plans and salary reduction simplified employee pensions (SARSEPs).
• You can choose how much you want deducted from your salary—either before or after taxes.
• The IRS limits how much you can contribute to your retirement savings plans.
• The catch-up contribution limits are different for different types of retirement accounts.
• The IRS sometimes changes the contribution limit, so it can differ from one year to the next.

A catch-up contribution is an opportunity for workers aged 50 and older to invest more of their salary into their retirement savings accounts than standard IRS or plan rules typically allow.

Catch-up contributions can be made to:

• 401(k) plans.
• IRAs. 
• 403(b) plans.
• Governmental 457(b) plans. 
• SARSEPs.
• The federal government’s Thrift Savings Plan.

If you’re nearing retirement and haven’t saved as much money as you want, you could “catch up” on your financial goals with these extra contributions.

But you don’t have to be behind to take advantage of catch-up contributions. Even if you’re on track, catch-up contributions could help you achieve your retirement savings goals sooner.

Catch-up contributions work the same way as regular contributions to a 401(k), IRA or other retirement savings account. 

If you’re already contributing the highest percentage of your salary that the IRS and your employer’s plan allow, you may be eligible to contribute even more—as long as you’re 50 or older. 

You decide the amount of your automatic payroll deduction. And you can change the amount throughout the year. But there are limits. And they can be different for different types of plans.

Catch-up contribution limits also can change from year to year because some are subject to cost-of-living adjustments. 

Check with your plan’s administrator for details and requirements.

Catch-up contributions are only for workers 50 and older, but they don’t simply start on your birthday.

It’s more complicated than that because of an unusual rule and two timelines: the calendar year and the plan year. 

The rule deems you to be 50 for the entire calendar year in which you turn 50. That means you’re considered to be 50 on January 1—even if your birthday isn’t until November 30. 

For plans that run on a calendar year, you could start making catch-up contributions on Jan. 1. But things can get more confusing with plan years. They sometimes coincide with a company’s budget year. 

For example, say you turn 50 on November 30, 2024. You’re deemed to be 50 on January 1, 2024. Your 401(k) plan year is from October 1 to September 30. You could make catch-up contributions from October 1, 2023, through September 30, 2024.    

The key is you have to be 50 at the end of the calendar year in which the plan year ends.

The IRS limits how much more of your salary you can set aside in your retirement savings accounts:

In 2023, workers of any age can contribute up to $22,500 a year to these plans:

• Most 401(k) plans.
• 403(b) plans.
• Governmental 457(b) plans. 
• SARSEPs.
• The federal government’s Thrift Savings Plan.

Workers 50 and older can contribute another $7,500—for a total of $30,000 a year.

Keep in mind that the catch-up contribution limit for a savings incentive match plan for employees (SIMPLE) IRA works a little bit differently. As the IRS explains, some of these plans “may permit annual catch-up contributions up to $3,500 in 2023.”

In 2023, workers of any age can contribute up to $6,500 a year to a traditional IRA.

Workers 50 and older can contribute another $1,000—for a total of $7,500.

In 2023, workers of any age can contribute up to $6,500 a year to a Roth IRA.

Workers 50 and older can contribute another $1,000—for a total of $7,500.

Keep in mind that unlike for traditional IRAs, there are income limits for Roth IRA contributions that are based on a person’s modified adjusted gross income (MAGI):

• If you’re filing singly, you must have a MAGI of $129,000 or less.
• If you’re filing jointly, you must have a MAGI of $204,000 or less.

People who work for small businesses that don’t have retirement plans still can save for their future. 

Employees and employers—typically with 100 or fewer workers—can contribute to a traditional IRA. It’s called a savings incentive match plan for employees (SIMPLE) IRA.

Workers of any age can contribute a maximum of $15,500 a year to a SIMPLE IRA.

Workers 50 and older can contribute another $3,500—for a total of $19,000. 

But what about business owners with no employees? That’s where a solo 401(k) could be an option. The catch-up contribution limits are the same as for a traditional 401(k). The standard limit is $22,500 and the catch-up limit is $7,500.

The benefit of catch-up contributions is generally the same as the benefit of contributing to a retirement savings plan in the first place: It can help you better prepare financially for retirement. Catch-up contributions just allow you to contribute even more toward your retirement—and, thanks to compound interest, they can help your account earn more money more quickly.

Catch-up contributions can even help you lower your tax bill, depending on the type of retirement account.

If you’re aged 50 or older, catch-up contributions can help you save—and earn—more money for retirement. Catch-up contributions can be made to a variety of different retirement accounts, including 401(k) plans, IRAs, 403(b) plans, governmental 457(b) plans and SARSEPs.

You can choose how much you want deducted from your salary—either before or after taxes. But keep in mind that the IRS limits how much you can contribute to your retirement savings plans. And the catch-up contribution limits are different for different types of retirement accounts.