Most people think of retirement as a period when you live comfortably, with the time, money, and other resources available to enjoy a fulfilling lifestyle. To achieve these retirement goals, you need to plan ahead financially. That includes contributing regularly to a retirement savings plan. Once you reach age 50, you can make additional ‘catch-up’ contributions to help your retirement nest egg grow faster. Here, SageVest Wealth Management outlines the details of how and when to make retirement catch-up contributions.
If you’re already 50 or older, or you’re turning age 50 before year-end, you may be entitled to make additional ‘catch-up’ contributions to your IRA or employer-sponsored retirement plan. These catch-up contributions are in addition to any regular contribution amounts you may make.
Catch-up contributions are designed to help you increase your retirement savings more rapidly during the countdown to your retirement. This opportunity is available for the full year in which you turn age 50 and each year thereafter.
Making catch-up contributions to your retirement plan not only allows you to save more towards your retirement goals, but it typically also helps to reduce your taxable income for the current year.
Note that Roth contributions do not reduce your taxable income for the year in which you contribute. However, all future earnings and withdrawals will be tax-exempt.
How Much Can I Contribute?
How much you can contribute as a catch-up contribution depends on the type of retirement plan you have and the tax year for which you’re making the contribution. Catch-up contributions can be made to traditional and Roth IRAs, as well as to 401(k) plans and certain other employer-sponsored retirement plans.
Check with your plan administrator, as not all employer-sponsored retirement plans allow for catch-up contributions.
For 2022-2023, traditional and catch-up contributions are as follows:
| Plan Type | 2022 regular contribution | 2022 catch-up contribution | 2023 regular contribution | 2023 catch-up contribution |
|---|---|---|---|---|
| 401(k) | $20,500 | $6,500 | $22,500 | $7,500 |
| 403(b) * | $20,500 | $6,500 | $22,500 | $7,500 |
| 457(b) TSP * | $20,500 | $6,500 | $22,500 | $7,500 |
| Simple | $14,000 | $3,000 | $15,500 | $3,500 |
| Traditional IRA | $6,000 | $1,000 | $6,500 | $1,000 |
| Roth IRA | $6,000 | $1,000 | $6,500 | $1,000 |
*403(b) and 457(b) plans have additional special catch-up rules that may apply. Consult your plan coordinator.
How to Elect Your Catch-Up Contributions
To take advantage of catch-up contributions, you’ll need to make a special election. If you’re contributing to an employer-provided plan, contact your employer’s payroll representative and/or retirement plan administrator to make arrangements for your increased contributions. If you’re self-employed, you should also contact your plan administrator, if applicable.
When to Elect Your Catch-Up Contributions
Most plans allow you to begin making catch-up contributions anytime during the calendar year in which you turn 50. It is important to adjust your deferral amount at the beginning of the year to spread the contributions evenly across twelve months and ensure you reach the new maximum. If you wait and start catch-up contributions mid-year, you might need to contribute a higher amount per pay period to reach the maximum contribution amount before year-end.
Example: Assume you wish to contribute the full $7,500 catch-up amount for the year. If you begin at the beginning of the year and you’re paid bi-weekly, your catch-up amount equates to $288.46 per pay period. However, if you wait until the 11th pay period for the year, you then need to contribute an $468.75 per pay period to reach your target of $7,500 before year-end.
Furthermore, if you begin mid-year, remember to make another adjustment at the beginning of the following year to spread the contributions evenly across all pay periods going forward.
SageVest Wealth Management is here to help you achieve your long-term personal and financial objectives. We offer comprehensive wealth management strategies that are tailored to suit your unique requirements. To discuss your options regarding retirement catch-up contributions or any other aspect of your retirement planning or broader financial planning, please contact us.
