Catch Up Contributions

In 2001 congress passed a law that can help older workers make up for lost time. But few may understand how this generous offer can add up over time.

The “catch-up” provision in retirement savings plans allows individuals who are age 50 or older to contribute additional funds beyond the standard contribution limits. These extra contributions are designed to help individuals boost their retirement savings as they approach retirement age. Catch-up contributions are available in various retirement plans, such as 401(k)s, IRAs, and certain other retirement accounts.

Here's how they work:

1. Eligibility:

To be eligible to make catch-up contributions, you generally need to be at least 50 years old by the end of the calendar year. This means you can start making catch-up contributions in the year you turn 50.

2. Contribution Limits:

The catch-up contribution limits are in addition to the regular contribution limits set for each type of retirement account. As of 2023, here are the catch-up contribution limits and total contributions (regular + catch-up contributions) for some common retirement accounts:

Traditional and Roth IRAs: $1,000 catch-up contribution (total contribution limit of $7,500 for those 50 and older).

401(k)s: $7,500 catch-up contribution (total contribution limit of $30,000 for those 50 and older).

403(b)s: $7,500 catch-up contribution PLUS participants with 15+ years of service get an additional catch-up of $3,000 as well (total contribution of either $30,000 or $33,000, depending on years of service).

SIMPLE IRAs: $3,500 catch-up contribution (total contribution limit of $19,000 for those 50 and older).

3. Contribution Timing:

Catch-up contributions can be made at any time during the calendar year, just like regular contributions. You can contribute through payroll deductions (for employer-sponsored plans) or directly to your IRA.

4. Tax Benefits:

Catch-up contributions offer the same tax advantages as regular contributions. In traditional retirement accounts, contributions reduce your taxable income for the year, while earnings grow tax-deferred. In Roth accounts, contributions are made with after-tax money.

5. Plan-Specific Rules:

Different retirement plans may have specific rules and procedures for making catch-up contributions. For employer-sponsored plans, it's important to check with your plan administrator or HR department to understand the process and any restrictions.

Catch-up contributions can be a valuable tool for individuals who want to accelerate their retirement savings as they approach retirement age.