No one likes to feel behind. However, many Americans find themselves in this situation when saving for retirement. Almost half of American households had no savings in their retirement accounts in 2022. In addition, just 26% reported having more than $100,000, and 9% had more than $500,000 in retirement savings.
Fortunately, the IRS recognizes the importance of bolstering retirement savings in later years and offers provisions through catch-up contributions. Here’s a comprehensive overview of these contributions and how they can impact your retirement savings.
What Are Catch-Up Contributions?
Introduced in 2001 by former President George W. Bush, catch-up or make-up contributions allow people 50 and older to make additional contributions to tax-advantaged retirement accounts above the standard contribution limits. These special contributions can boost your retirement savings and help make up for years when you may not have saved enough.
The following accounts can accept catch-up contributions:
- 401(k)s
- 403(b)s
- Government 457(b)s
- Traditional individual retirement accounts (IRAs)
- Roth IRAs
- Savings Incentive Match Plan for Employees (SIMPLE) 401(k)s
The amount you can contribute varies based on the account and inflation. Make-up contribution limits are typically updated annually to account for inflation and published in the IRS’s Cost of Living Adjustment (COLA) table.
For example, the annual make-up contribution limit in 2023 and 2024 is $7,500 for 401(k) and workplace retirement plans, a COLA increase from $6,500 in 2021 and 2022. These contributions are in addition to the standard $23,000 limit. So if you’re 50 and over, you can contribute $30,500 in 2024.
The Advantages of Catch-Up Contributions
If you’re like most people, saving for retirement might sometimes fall in priority, leading to a gap between where you are and where you want to be. However, make-up contributions aren’t just for those needing to inch closer to their retirement savings goals. They can also be beneficial for those who are already there.
Close Your Savings Gap
Whether paying off student loans, saving for a house, or preparing for a baby, life often presents more essential priorities than retirement. Many people lack the flexibility to save early on in their careers.
All these factors can create a savings gap or make you feel you need more time to be ready to retire. Make-up contributions can help you close the gap and reach your ideal monthly retirement income.
Increase Your Savings
If you’ve managed to save adequately for retirement, you may want to leave a sizable inheritance for loved ones. Make-up contributions can boost your savings, potentially leading to a more comfortable retirement or a more significant legacy for your family. Compound interest also allows your money to grow, helping you create a financially secure future.
Lower Your Taxable Income
Like your regular contributions, make-up contributions are pretax. They can reduce your taxable income and may even push you into a lower tax bracket, reducing your tax rate.
Make-Up Contribution Limits for Different Accounts
The IRS establishes make-up contributions for qualifying retirement plans annually. You must reach the standard plan contribution limit to make these supplemental contributions. Additionally, different plans may have different make-up contribution amounts and limits.
Workplace Retirement Plans
Workplace retirement plans—such as 401(k)s, 403(b)s, select 457s, and the federal government’s Thrift Savings Plan—have a contribution limit of $23,000 in 2024. The annual make-up contribution limit for 2024 is $7,500, which means people 50 and over can contribute $30,500.
IRAs
The 2024 contribution limit for Roth and traditional IRAs is $7,000. The make-up contribution limit is $1,000, so people 50 and over can contribute $8,000 to IRAs.
SIMPLE 401(k)s
A SIMPLE 401(k) is a retirement savings plan for small businesses with 100 or fewer employees. It combines traditional 401(k) features with the simplicity of a SIMPLE IRA. SIMPLE retirement plans have a contribution limit of $16,000 with a make-up contribution limit of $3,500. So, people 50 and older can contribute $19,500.
Understanding Total Contribution Limits
The IRS also limits the total amount you and your employer can add to your account annually. For instance, the maximum amount you and your employer can add to your 401(k) is $69,000 in 2024. The limit increases to $76,500 when you include make-up contributions. Fortunately, this limit doesn’t affect most people, as they don’t contribute nearly as much—even with make-up contributions.
How to Start Making Catch-Up Contributions
First, determine how much you can afford to contribute. Next, log in to your retirement account and change your contribution percentage. Contrary to popular belief, you don’t have to do anything special if you’re eligible to make extra contributions.
Whether it’s a 401(k), 403(b), or any other retirement savings plan, you can make additional contributions the year you turn 50. You don’t have to wait for your actual birthday. For instance, if you turn 50 in December 2030, you can make extra contributions in January 2030.
You should be able to make additional contributions at any time and change how much you want to contribute per pay period. This flexibility and control over your contributions can empower you to maximize your retirement savings potential.
Deadlines to Know
The deadline to make any contribution to your employer-sponsored retirement account, including make-up contributions, is December 31 of that year. On the other hand, you can contribute to your IRA until the following year’s Tax Day. For example, you can no longer contribute to your 401(k) for 2024 after December 31, 2024. However, you have until April 15, 2025, to contribute to your IRA.
SECURE Act 2.0 Changes to Catch-Up Contributions
The SECURE 2.0 Act introduces several changes to make-up contributions.
Older Savers Can Save Even More
Beginning on January 1, 2025, people aged 60 to 63 are eligible to make even more make-up contributions to employer-based retirement plans. The limit for people in this age range is $10,000 or 150% of the standard catch-up limit—whichever is more.
Roth 401(k) Contributions
If you’re a high earner, a new 2026 rule may impact how you contribute:
- If you earn under $145,000, you can continue with regular make-up contributions.
- If you earn $145,000 or more, your make-up contributions will be Roth 401(k) contributions. So, you’ll pay taxes on your make-up contributions now, but you’ll receive a tax break on the earnings withdrawn later (as long as you’re 59½ and made your first contribution at least five years prior).
Getting Help with Make-Up Contributions
Understanding the complexities of these special contribution rules can be confusing. Rest assured you’re not alone. For personalized assistance, consider reaching out to a Bankers Life representative who can help you understand your options and identify viable paths toward your goals.
Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors.
We’re here for you!
Bankers Life is here to help customers with their financial and insurance needs so please visit us at BankersLife.com to learn more.
Bankers Life Securities, Inc., Bankers Life Advisory Services, Inc., and their representatives do not provide legal or tax advice. Each individual should seek specific advice from their own tax or legal advisors.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Bankers Life is the marketing brand of various affiliated companies of CNO Financial Group including, Bankers Life and Casualty Company, Bankers Life Securities, Inc., and Bankers Life Advisory Services, Inc. Non-affiliated insurance products are offered through Bankers Life Securities General Agency, Inc., (dba BL General Insurance Agency, Inc., AK, AL, CA, NV, PA).
Securities and variable annuities offered through Bankers Life Securities, Inc. Member, FINRA/SIPC (dba BL Securities Inc., AL, GA, IA, IL, MI, NV, PA). Advisory products and services offered by Bankers Life Advisory Services, Inc. SEC Registered Investment Adviser (dba BL Advisory Services, Inc., AL, GA, IA, MT, NV, PA).
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
Investments are: Not Guaranteed—Involve Risk—May Lose Value.
