How to fully utilize 401(k) catch-up contributions

How to fully utilize 401(k) catch-up contributions


There’s never a bad time to audit your retirement savings account and make sure there are no major discrepancies between the amount of time you’d like to be retired and the amount of time you can afford to be retired. Maybe you weren’t as vigilant about saving for your retirement as you should have been early on or maybe you recently decided to raise your savings goals. Whatever the reason, if you’re over the age of 50 and are further from being retirement ready than you’d like to be, catch-up contributions can help.

Catch-up contributions are just that—an opportunity for people aged 50 and older to “catch up” on retirement savings. The rules allow savers over the age of 50 to put additional money into their retirement savings accounts, over and above the standard limits.

IRS regulations on catch-up contributions

It’s a fairly straightforward concept, but the IRS has put a few parameters around who can contribute, which retirement plans qualify, and how much extra cash can be stashed away yearly:

  • Catch-up contributors must be plan participants aged 50 or older.

  • Most 401(k) plans allow for catch-up contributions, but be sure to check to see if your plan has this option prior to contributing any catch-up funds.

  • IRA plans are eligible for catch-up contributions.

  • Annual catch-up contribution limits for 2018 are based on retirement product type:

    • In IRA and ROTH IRA plans, eligible participants can contribute up to an additional $1,000 over the plan maximum of $5,500 for annual savings totaling $6,500.

    • In Simple IRA plans, eligible participants can contribute up to an additional $3,000 over the plan maximum of $12,500 for annual savings totaling $15,500.

    • In 401(k) plans, eligible participants can contribute up to an additional $6,000 over the plan maximum of $18,500 for annual savings totaling $24,500.

Benefits of utilizing catch-up contributions for retirement savings

Setting more money aside for retirement is a personal, albeit smart, decision that provides certain advantages. Choosing to make catch-up contributions to your retirement fund puts you in a great position to retire when and how you want to—maybe even years earlier than you originally anticipated. Plus, it allows you to maximize tax deductions related to retirement plan contributions while increasing your retirement nest egg and increasing your overall retirement readiness.


Nicholas Crary, CPFA - Financial Services Representative - nccrary@pai.com - 800.236.7400 Ext. 3381

Nick is a subject matter expert on 401(k), retirement savings, participant advice, small business 401(k), investments, education on options.