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Going into retirement with financial security allows you to make the decisions you want, from choosing the senior community you like best to being able to travel. Saving for retirement expenses during your working years isn't always easy, though. If you get a late start or your early contributions are lower than you want, you might find yourself playing catch-up later in your working years. For certain retirement plans, catch-up retirement contributions can help you reach your retirement savings goals. Find out how they work and who can make them to see if they're an option for you.

What Are Catch-Up Retirement Contributions?

Catch-up retirement contributions are additional contributions to your retirement account beyond the standard maximum. Retirement savings accounts limit how much you can contribute each year, so you might not be able to save as aggressively as you want, especially as you near retirement age. When you're eligible for catch-up contributions, you can save more than that normal maximum each year.

Who Is Eligible?

You must be at least 50 years old to be eligible for catch-up retirement contributions. You can start making the contributions in the calendar year you turn 50. Even if you don't turn 50 until December, you can start making the catch-up contributions earlier in the year if you max out your normal contributions.

Eligible Retirement Savings Plan Types

These additional payments are available when you have specific types of retirement accounts. The additional contributions are capped. Catch-up contribution limits vary based on the type of retirement account, and they can change each year. The eligible types and limits for 2023 include:

• 401(k): $7,500
• 403(b): $7,500
• SARSEP: $7,500
• Governmental 457(b): $7,500
• SIMPLE IRA: $3,500
• SIMPLE 401(k): $3,500
• Traditional or Roth IRA: $1,000

These contributions are on top of the normal annual contribution limits, which also vary. For instance, a 401(k) allows for up to $20,500 annually in regular contributions. Combined with the catch-up amount of $7,500, the total maximum for people over 50 is $28,000 for 2023. SIMPLE IRAs and 401(k)s have regular contributions of $14,000 for a total of $17,500 with catch-up contributions. You can contribute $6,000 to IRAs yearly plus an additional $1,000 if you're eligible for catch-up payments for a total of $7,000.

Benefits of Making Increased Contributions

Catch-up contributions are designed for older employees nearing retirement age who got a late start on saving or couldn't save as much as they wanted. Even if you feel you're on track to reach your retirement savings goals, these extra contributions can help you maximize your savings and have more of a cushion in retirement. Catch-up contributions let you enjoy the tax advantages of retirement accounts while increasing your savings aggressively before you retire.  

How to Make Catch-Up Retirement Contributions

If you have an employer-sponsored retirement plan, talk to HR once you're eligible for catch-up contributions. You might need to alert your employer that you want to make extra contributions. If you increase your savings throughout the year and reach the normal contribution maximum early, your employer might not collect the additional amount without you opting in.

Planning makes it easier to maximize your retirement contributions. Review your current savings, how much you need for retirement and your goals to decide if you need to make extra contributions. Spreading the total contribution throughout the year makes the extra amount easier to save. For instance, if you want to contribute the total $28,000 for your 401(k) between the normal and catch-up contributions, dividing that amount by your total pay periods for the year spreads it out evenly.

Say you make your normal contributions and don't hit the limit of $20,500 until December. You can still contribute the catch-up amount of $7,500, but you don't have much time left to do so. Your budget might not allow you to contribute that much at the end of the year. Contributing more from the beginning makes it easier financially to save extra money.

Other Ways to Prepare Financially for Retirement

Catch-up contributions are just one way to improve your financial stability in your retirement years. Here are some additional ways you can prepare for retirement financially:

• Pay down debt: Lowering the amount of debt you have going into retirement frees up more of your savings. Getting rid of high-interest debt can be especially helpful.
• Save other ways: Putting your extra money into tax-advantaged retirement accounts is ideal, but you can save or invest money in other ways to prepare for retirement. This might include high-yield savings accounts, CDs, stocks and money market funds among many others.  
• Plan your living arrangements: Mortgage payments, ongoing maintenance expenses and modifications to your home to make it accessible can add up. Consider the option for assisted living in the future as your needs change. Living in an assisted living community like Hickory Villa offers maintenance-free living with the support you need at a fixed monthly cost.
• Cut expenses: Downsizing now and cutting unnecessary expenses frees up more money to save and reduces your living expenses when you retire.

Making catch-up contributions and making other financial preparations can make your retirement years more comfortable and less stressful.