Tax-deferred plans like 401(k) accounts are the gold standard for retirement savings, but there are limits to how much you are allowed to invest each year. The limit in 2023 for anyone under the age of 50 is $22,500. Once you hit that midcentury mark, the Internal Revenue Service (IRS) allows you to make additional contributions, beyond the standard contribution limit, to help you speed up savings. These are referred to as catch-up contributions. In 2023, the 401(k) catch-up contribution limit is $7,500, meaning that workers aged 50 and older are allowed to contribute a total of $30,000 per calendar year.
Why You Should Make 401(k) Catch-Up Contributions
For adults over 50 whose retirement savings are lagging or need to be rebuilt, catch-up contributions provide a crucial opportunity to improve the health of your retirement fund in a relatively short period of time.
If you start putting additional money into your 401(k) at age 50 and don’t retire until you are at least 65, you could potentially save over $100,000 in those 15 years. Depending on the economy, that contribution amount could continue to grow even larger depending on compound interest and market returns. Even if you’ve been funding your 401(k) since early adulthood, contributing more may help improve your bottom line in the future. Here’s what else you need to know about making catch-up contributions to your 401(k).
Catch-Up Contribution Restrictions
Catch-up contributions must be made before the end of the plan year and must be made to a retirement plan via elective deferrals. Employees with at least 15 years of service may be eligible to make additional contributions to a 403(b) plan in addition to the regular catch-up contributions for participants who are age 50 or over.
Recent Changes to Retirement Account Rules
Beginning in 2026, the IRS will require catch-up contributions for highly compensated employees (HCEs) to be made on an after-tax Roth basis. Taxpayers making over $145,000 won’t be able to get tax deductions on those catch-up contributions as they would with typical 401(k) contributions. However, the money can be withdrawn tax-free in retirement.
We Can Help You Get Ready for Retirement
No matter how much catching up you may have to do, a Farm Bureau financial advisor may be able to help.