Catch-up contributions: Definition, amounts by account and how to make them

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What are catch-up contributions?

Catch-up contributions are an opportunity for those ages 50 and older to save additional money for their retirement on a tax-advantaged basis. The increase is designed for the saver who may have gotten a late start on their retirement savings or was forced to delay their savings for some reason — for them to “catch up.”

You can, however, work to catch up even if you don’t feel like you’ve fallen behind. These contributions are for anyone who is looking to maximize their ability to save for their retirement while enjoying benefits on their tax bills, either now or in the future. Simply put, catching up can help you get further ahead with your long-term financial goals.

How catch-up contributions work

If you’ve been contributing money to a retirement plan, you’ve been adhering to annual limitations put in place by the IRS throughout the early part of your career. Catch-up contributions raise that ceiling, allowing for more tax-advantaged growth as you get closer to your final day at work.

Your eligibility for catch-up contributions begins in the calendar year you turn 50 — not once you actually turn 50 — which means that late-year birthdays can max out their contributions before hitting the half-century mark. If, for example, you turn 50 in July next year, you are eligible for catch-up contributions beginning on Jan. 1, 2022.

Consider the limit for IRA contributions for those 50 and older in 2021: $7,000, which represents $1,000 in additional catch-up contributions. An extra $1,000 might not sound like a major difference, but those additional annual payments add up. Let’s look at a saver who recently turned 50 and has already been contributing the maximum of $6,000 to an IRA. By putting in an additional $1,000 each year until age 60, and keeping it invested until age 80, it boosts the nest egg by $35,000, assuming a 5 percent rate of return. That return may fluctuate, but the math is clear: Playing catch up can play a critical role in creating a winning savings plan.

Bankrate’s suite of retirement calculators can help you estimate what catch-up contributions can do for your savings.

Catch-up contribution amounts by account

The IRS sets up catch-up contribution limits, which vary based on your retirement arrangement. These amounts apply through the end of 2021. Keep in mind that these limits may change in 2022 and beyond.

Contribution limit Catch-up contribution Total contribution
401(k) $19,500 $6,500 $26,000
Traditional IRA $6,000 $1,000 $7,000, provided that you have at least $7,000 of earned income
Roth IRA $6,000 $1,000 $7,000, provided that you have at least $7,000 of earned income
Simple IRA $13,500 $3,000 $16,500

How to make catch-up contributions

If you’re investing in a traditional or Roth IRA through a brokerage or a mutual fund company, you should automatically see a reflection of your increase in available contributions. You can make these extra contributions over the course of the year, or you can add a sum of money prior to the date your taxes are due.

With an employer-sponsored plan, though, you may need to take some additional steps once you become eligible for these additional contributions:

  • Get in touch with your benefits department on day one: You may need to opt in for the ability to take advantage of catch-up contributions. Be sure to contact the appropriate person in charge of administering your plan. Otherwise, your employer might automatically stop collecting your contributions once you hit the $19,500 threshold.
  • Plan ahead: You’re planning for your retirement, but you will also need to do some planning in the present for your catch-up contributions. Calculate how many paychecks you have remaining in the year and how much more you need to contribute to reach the limit. If your intention is to contribute as much as possible, you don’t want to fall short of the limit because you didn’t contribute enough per paycheck.
  • Budget accordingly: Let’s say you hit the $19,500 limit in early November. If you still want to allocate an additional $6,500 to your 401(k), you only have a few pay periods remaining. This will require some hefty contributions around a time where you might also be doing some end-of-year holiday shopping. Make sure your short-term spending plan is in line with your long-term saving strategy. Adjusting your budget for a couple of months might come with some frustrations, but decades later, you’ll recognize it was a wise decision.
  • Pick when your tax benefits shine: Decide whether to make your contributions on a pretax or Roth basis. Some employers offer Roth 401(k) plans, which have no income limits. So, no matter how much you’re earning right now, by accumulating assets in a Roth 401(k), you’ll be able to enjoy tax-free withdrawals when you retire.

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Written by
Greg McBride, CFA
Chief financial analyst
Greg McBride, CFA, is Senior Vice President, Chief Financial Analyst, for Bankrate.com. He leads a team responsible for researching financial products, providing analysis, and advice on personal finance to a vast consumer audience.
Edited by
Senior editorial director
Reviewed by
Professor of finance, Creighton University