A common worry among many hard workers is not having enough for retirement. In fact, Thrivent's 2022 Retirement Readiness Survey1 found that regardless of age, not saving enough is often the biggest regret for individuals planning retirement.
If you're in this boat, feeling angst or uncertainty as you move closer to retirement, finding ways to boost your savings can give you more confidence for your future.
Catch-up contributions are a great way to boost and revitalize your retirement savings. Instead of wondering whether you'll have enough, you can work toward closing budget gaps, building a nest egg for loved ones or giving back to the community organizations you hold dear.
What is a catch-up contribution?
Catch-up contributions allow you to add additional dollars beyond the annual contribution limit of your retirement plan.
You're eligible to make catch-up contributions if you meet the following criteria:
- You are at least 50 years old or will be before the end of the year
- You participate in a retirement plan that allows catch-up contributions (401(k), 403(b), IRAs, etc.)
- You've already met your regular contribution limit for the year (see the chart below)
Benefits of catch-up contributions
These contributions offer two major benefits: lowering your taxable income and increasing your principal investment.
- Catch-up contributions may lower your taxable income: Contributions to traditional retirement accounts, like a 401(k), 403(b) or traditional IRA, are made with pre-tax dollars. Increasing your contributions
decreases your taxable income.If it's significant enough, the change could shift you to a lower tax bracket, saving you even more on your current year's tax bill. Note that contributions to Roth IRAs are the exception to this rule because they are made with after-tax dollars.
- Catch-up contributions can offer the potential for higher returns: You're not guaranteed to make money when investing in the market. But by regularly investing and letting the money sit untouched over the long term, you can give it a greater chance to appreciate with compound interest.
2023 catch-up contribution limits
The contribution limits and catch-up contribution maximums vary greatly by the type of plan. You can find the details applicable to your retirement plan below:
|Large employer-sponsored retirement plans2: 401(k), 403(b), 457(b), Thrift Savings Plan (TSP), and SARSEP||$22,500||$7,500||$30,000|
|Small business employer-sponsored plans or self-employed retirement plans: SIMPLE 401(k), SIMPLE IRA||$15,500||$3,500||$19,000|
|Individual retirement accounts3:|
Traditional IRA, Roth IRA, SEP IRA
Can employers match catch-up contributions?
Some employers offer to match all or a portion of your retirement contribution up to a limit. Although employers can match catch-up contributions, it is unlikely that catch-up contributions will qualify for the employer match. For example, an employer may choose to match up to 6% of your total compensation. That means any contributions you make above 6% of your salary will not be matched by your employer. Because catch-up contributions must exceed the annual contribution limit, in most cases, catching up will put you over the employer match limit. To be sure of what your employer will match, it's best to review the details of your employer plan.
What your employer puts into your account does not count toward your salary deferral limit. So if you're making a 401(k) catch-up contribution and have an employer match, you could accumulate more than the $6,500 catch-up limit, and that's allowed by the IRS. You'll be within IRS limits for 2023 as long as your total contribution amount—including all retirement accounts and employer contributions—does not exceed
When does it make sense to make catch-up contributions?
Catching up on retirement savings is helpful for anyone
If you're wondering whether catching up is a good idea, start by reviewing how you're tracking toward your retirement goals. A
Maybe you didn't save as much as you wanted when you were younger, or you were hit with some unexpected, large expenses. Situations like these can thwart even the best financial strategies. Contributing additional dollars could help close the gap between your income and your retirement needs.
Even if your financial journey has been smooth and you're right where you want to be, taking advantage of the catch-up limit can move the needle. It can allow you to leave more for your loved ones or have some to give back to the charities and organizations that keep your community strong.
How to make a catch-up contribution in 5 easy steps
Making these types of contributions can be straightforward as long as you keep the following considerations in mind:
1. Know your plan's provisions. If you're turning 50 by the end of the year, the first step is making sure your retirement plan has a catch-up program and that you understand the stipulations. Some plans have limits that differ from IRS rules, so do your due diligence before increasing your contribution.
2. Calculate your catch-up amount. Setting up a catch-up contribution is as simple as increasing the amount you defer to your retirement savings, but you'll want to be intentional with your increase. Make sure your added contribution is enough to help you reach your goals.
3. Adjust your budget. Whether money is tight or you have a little breathing room each month, know how your updated contributions will affect your
4. Make the changes. Many plans allow you to increase your contributions online, or you can contact your plan administrator. Employer-sponsored plans may require you to make your changes before the end of the year. The deadline for updating IRAs is before your next income tax return.
5. Review your contributions regularly. At the end of the year, the administrator will look at your total contributions and classify any amount above the annual limit as a catch-up contribution. You—not your employer—are responsible for making sure you're within the IRS or plan-defined limits. A couple of check-ins each year should reveal whether you're on track or pacing to exceed your limit.
If you find you're
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Whether you're closing a budget gap, leaving more for your loved ones or planning to give back to the community and organizations you hold dear, catch-up contributions can move you closer to your desired retirement lifestyle. Even if you max out your total contribution, there are ways you can
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