50 or Older: How to Catch up on Your Savings
The idea that turning 50 means slowing down is likely a misconception held by younger individuals. Those who have reached this milestone know that life is still in full swing—and that retirement is approaching faster than ever. With so many experiences still ahead, ensuring financial security becomes a top priority.
The federal government knows that many people over 50 need to save more for retirement. They have added rules in the tax code to help. These "catch-up" contributions let people save more money in tax-advantaged accounts. This includes IRAs, 401(k)s, and HSAs, starting at age 55. These contributions help individuals get ready for retirement.
The Power of Catch-Up Contributions
Taking advantage of catch-up contributions can significantly impact your retirement savings. For example, if you start making an extra $1,000 annual contribution to your IRA at age 50 and continue for 20 years, assuming a 7% average return, you could amass nearly $44,000 more than if you hadn't utilized the catch-up provision. The benefits are even greater for workplace retirement plans like 401(k)s, which offer larger catch-up opportunities.
Steps to Strengthen Your Retirement Savings
1. Assess Your Retirement Readiness
Before making adjustments, it’s crucial to evaluate your current financial standing. Are you on track to meet essential expenses in retirement? Consider using retirement readiness tools that can help assess your preparedness and suggest improvements, such as adjusting savings rates or investment strategies.
2. Maximize Catch-Up Contributions
Once you turn 50, you become eligible to contribute more to tax-advantaged retirement accounts:
● IRAs: In 2024 and 2025, the catch-up contribution limit is $1,000, raising the total allowable contribution to $8,000 annually.
● 401(k), Roth 401(k), 403(b), and similar plans: The catch-up contribution limit is $7,500 in 2024 and 2025, allowing a total contribution of up to $30,500 in 2024 and $31,000 in 2025.
Additionally, the SECURE 2.0 Act introduces changes starting in 2026, requiring high earners (above $145,000 in the prior year) to allocate catch-up contributions to Roth accounts. Beginning in 2025, individuals aged 60-63 may qualify for increased catch-up limits, allowing contributions of up to 150% of the standard limit.
Self-employed individuals and small business owners can also benefit:
● SIMPLE IRA: Catch-up contributions of $3,500 bring the total allowable contribution to $19,500 in 2024 and $20,000 in 2025.
● Solo 401(k): Catch-up contributions of $7,500 increase the total contribution potential to $30,500 in 2024 and $31,000 in 2025.
For those aged 60-63 starting in 2025, catch-up limits increase:
● SIMPLE IRA: Annual catch-up contribution of $5,250, raising the total allowable contribution to $21,750.
● Solo 401(k): Catch-up contribution of $11,250, increasing the total contribution limit to $34,750.
3. Utilize Tax-Advantaged Accounts Strategically
Even if you are on track with retirement savings, tax-advantaged accounts offer powerful benefits:
● Traditional IRAs and 401(k)s provide tax-deferred growth, with contributions reducing taxable income in the current year.
● Roth IRAs offer tax-free withdrawals in retirement, assuming eligibility requirements are met.
● Health Savings Accounts (HSAs) provide a unique triple tax advantage: contributions, earnings, and withdrawals for qualified medical expenses are tax-free. If you have a high-deductible health plan (HDHP), consider maximizing your HSA contributions to bolster future healthcare funds.
4. Invest Wisely for the Long Term
Your asset allocation plays a critical role in reaching your retirement savings goals. Stocks have historically delivered higher long-term returns compared to bonds and cash, though they come with increased volatility. A well-diversified portfolio can help balance growth potential with risk mitigation. As you approach retirement, consider gradually shifting toward a more conservative mix to protect your savings while maintaining some growth potential.
Planning for a Secure and Fulfilling Retirement
By taking full advantage of tax-advantaged accounts and catch-up contributions, you can position yourself for a stronger financial future. The key is to stay proactive, maximize opportunities, and ensure your investments align with your long-term retirement vision.
Sources:
https://www.fidelity.com/viewpoints/retirement/catch-up-contributions
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
