Retirement accounts like IRAs and 401(k)s provide a tax-advantaged path toward savings. Funds in the account earn interest and grow tax-free. Contributing as much as possible to your retirement account can lead to a financially stable future, but there are limits to how much you can contribute.  

The IRS sets contribution limits for different types of retirement accounts, and contributions exceeding that amount can lead to penalties. In the past, these limits made it harder for older Americans to adequately save for retirement, particularly if they had a late start. 

Fortunately, the 2001 Economic Growth and Tax Relief Reconciliation Act (EGTRRA) changed that, allowing eligible investors to make “catch-up contributions.” But what are catch-up contributions, who can make them, and how do you maximize them?  

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How Do Catch-Up Contributions Work?

Catch-up contributions work by extending the annual contribution cap for individuals age 50 or older. Ideally, these increased limits allow individuals who couldn’t or otherwise didn’t contribute enough to their retirement account to pave a meaningful path to retirement. Leveraging catch-up contributions allows you to save more each year while taking advantage of the compound interest earned over time. 

Tip: You can begin making catch-up contributions in the calendar year you turn 50. You don’t need to wait until your exact birth date to increase your contributions. 

How much extra can you contribute? That depends on the current IRS rules and the type of account you have. The IRS often sets new limits based on cost-of-living increases, so the amount you can contribute will depend on the tax year in question. It will also depend on the type of account you have. 

Catch-up contributions are only available for certain types of retirement plans, and each plan has its own set of rules. Currently, you can only make catch-up contributions for:

  • IRAs
  • 401(k)
  • SIMPLE 401(k)
  • 403(b)
  • Governmental 457(b) 

What Are the Catch-Up Contributions and Limitations for IRAs and 401Ks?

The table below provides a high-level overview of annual and catch-up contribution limits by type of account. However, before you contribute to your account, always check to see if there are any other considerations to keep in mind. 

For instance, Roth IRAs are subject to both annual contribution limits for IRA as well as a specific set of limits that depend on your tax status and annual income. Speaking to a financial professional can help you determine if your annual contribution plan aligns with IRS rules and regulations. 

Account type Annual base contribution Additional catch-up contribution 
IRA (Roth, Traditional)$6,500$1,000
Self-directed IRA (Roth, Traditional $6,500$1,000
Annual contribution and catch-up contribution limits reflect IRS rules for the 2023 tax year.  

Benefits of Catch-Up Contributions

If you’re turning 50 and you have the financial bandwidth to leverage catch-up contributions, it’s usually a wise move to do so. Here are some specific benefits to keep in mind: 

  • Contributions are tax-advantaged. Regardless of what type of account you have, the money in it grows tax-free.  If you have a Traditional IRA or 401(k), you can contribute pre-tax dollars. Once you take money out during retirement, you pay income tax based on your current tax bracket. If you have a Roth account, you contribute after-tax dollars but won’t need to pay taxes when you take qualified distributions.
  • Leverage compound interest. There’s no true way to determine how much your account will grow over time, especially since growth is typically often market dependent. But one thing is certain: the more you contribute, the faster your account will grow. Retirement accounts earn compound interest, meaning you’ll earn interest on the money you contribute as well as the interest it earned. Leveraging catch-up contributions will maximize potential. 
  • Accelerates path towards savings. If you started contributing to your account later in life, catch-up contributions will help you shore up enough savings to cover a host of expenses during retirement. 

Tips to Maximize Catch-Up Contributions

If you’re eligible for catch-up contributions, here are a few ways to make sure you’re getting the most out of this savings benefit. 

Find Out if You Qualify.

In most cases, you’ll qualify for catch-up contributions as long as you meet the age requirements. However, depending on the type of account you have, you may have other considerations to keep in mind. 

Most 401(k)s offer catch-up contributions, but it’s best to check with your plan administrator to ensure that’s true of your retirement account. In addition, Roth accounts contribution limits are subject to income and tax-filing-based restrictions. Always check with the latest IRS guidance or a financial professional if you’re unsure of your eligibility. 

Budget and Set Aside Extra Money

As you near your 50th birthday, make it a point to review your finances and determine how much extra you can comfortably contribute to your account. Creating a budget and setting aside money specifically for your retirement account can keep you on track and ensure you’re able to meet both your retirement goals and your regular financial obligations. 

Maximize Tax Benefits

Catch-up contributions come with the same tax benefits as regular contributions, but there are a few things to keep in mind if you want to maximize this benefit. 

If you don’t have an account or you are considering opening a new one, think about your future tax obligations, specifically what income bracket you’ll be in when you retire.

If you think you’ll be in a lower income bracket when you retire, a traditional IRA may be the way to go. That way, you can contribute pre-tax dollars to the account and only pay income tax on funds when you withdraw them in retirement. A lower income means a lower income bracket, which can reduce your total tax obligations over time. 

Likewise, if you think you’ll be in a higher income bracket in 10 to 15 years, consider a Roth account. These accounts are funded with after-tax dollars. Distributions are not taxed on the way out.

Maximizing your contribution limit by leveraging catch-up contributions may also help reduce your taxable income in the given tax year. This isn’t true for most Roth contributions but is often applicable for Traditional IRAs and 401(k)s

Transfer Funds from Another Account

If you don’t think you’ll be able to max out your catch-up contribution via your earnings, consider leveraging funds from a savings account or similar account. While savings accounts often do earn some interest, it’s usually much less than you may anticipate if the same funds were in a retirement account. Evaluate your current financial accounts and consider using funds from another account to fully leverage catch-up contributions. 

However, keep in mind that you cannot withdraw from a Traditional 401(k) before you reach retirement age. If you do, the amount withdrawn will be subject to a 10% penalty tax—negating your efforts to save. If you have a Roth account, you can make an early withdrawal from contributions without penalty, but you’ll be penalized for any withdrawal against earnings. 

Saving for retirement is essential to long-term financial security, but that doesn’t mean everyone can make contributions at an early age. If you’re getting a late start on your retirement savings, catch-up contributions can help you maximize your account, especially with compound interest. 

Catch-up contributions aren’t only for those who got a late start, however. Once you reach age 50, catch-up contributions offer a way to accelerate savings and are worth planning and budgeting for. 


What are the rules for IRA catch-up contributions?

As of 2023, individuals with an IRA can contribute an extra $1,000 a year through the catch-up contribution provision. This is true for both Traditional and Roth IRAs. However, Roth IRAs are also subject to tax status and income-based contribution limits. If you have a Roth IRA, always consider these limits before making catch-up contributions. 

At what age do you qualify for catch-up contributions?

You can begin making catch-up contributions in the calendar year during which you will turn 50. For instance, if you turn 50 in October, you can still begin making catch-up contributions in January of that year. 

Are catch-up contributions taxed?

If you contribute to a Traditional IRA or 401(k), catch-up contributions are taxed upon withdrawal. If you have a Roth account, contributions are made with after-tax dollars, and no additional tax will be applied to qualified distributions.