Catch-Up Contributions: How to Build Retirement Savings After 50

Catch-Up Contributions: How to Build Retirement Savings After 50

For many individuals aged 50 and above, understanding retirement savings is often a top priority. Catch-up contributions offer a way to support your savings so you’re prepared for the future. Yet, it’s not always clear how to build upon retirement savings when you’re close to retirement age. Understanding how these contributions work is the first step toward building a more desirable retirement. At Prosper Financial, we help clients navigate the complexities of financial planning to support their long-term goals. Here are some key ways catch-up contributions can help you build your retirement savings:

• Accelerate Savings: Add more to your retirement accounts than the standard annual limit.
• Tax Advantages: Potentially lower your taxable income now while saving for the future.
• Close the Gap: Make up for years when you may not have been able to save as much.

What Are Catch-Up Contributions and Why Do They Matter?

Catch-up contributions are an additional amount that individuals aged 50 and over can contribute to their retirement accounts, above the standard annual limits. The IRS established this provision to help those nearing retirement bolster their savings. This is particularly beneficial if you started saving later in life or experienced career interruptions.

These extra contributions are permitted for various retirement plans, including:

• 401(k) and 403(b) plans
• SARSEPs and governmental 457(b) plans
• SIMPLE IRA and SIMPLE 401(k) plans
• Traditional and Roth IRAs

How Do I Make Catch-Up Contributions?

Making catch-up contributions is a straightforward process. If you have a workplace retirement plan like a 401(k) or 403(b), you can simply increase your contribution amount through your employer’s payroll system. These contributions are made through elective deferrals, which are salary reduction contributions you choose to make.

Your plan administrator will automatically track your contributions. Once you fulfill the standard contribution limit for the year, any additional contributions will be classified as catch-up contributions until you hit the catch-up limit. It’s important to note that your elective deferrals are not considered catch-up contributions until they exceed the regular annual limit.

When Are Catch-Up Contributions Due?

Timing is crucial when making retirement contributions. For workplace retirement plans like a 401(k), you must make your catch-up contributions via elective deferrals before the end of the plan year, which for most is December 31.

The deadline for IRA contributions is different. You have until the tax filing deadline of the following year to make both regular and catch-up contributions to your traditional or Roth IRA. 

Ready to Build Your Financial Future?

Using catch-up contributions is a smart and effective strategy for anyone over 50 looking to strengthen their retirement savings. By taking advantage of these higher limits, you can make strides toward your financial goals in your final working years.

If you’re ready to plan your financial future and want to learn more about how catch-up contributions can fit into your overall retirement strategy, our team at Prosper Financial is here to help. Contact our office today to request a consultation.