How can catch-up contributions help me?

Read time: 2 to 3 minutes

They can help you save more! In fact, if you’re age 50 or older and want to save as much as you can, catch-up contributions could be your new best friend. We’ll tell you why in this article.

They can help you get back on track

Many of us got off to a slow start saving for retirement. Fortunately, most retirement plans allow for catch-up contributions later on.

In 2025, you can save up to $23,500 each year in your employer’s retirement plan. And if you’re age 50 or older, you can save up to an extra $7,500 in catch-up contributions.

Note: In 2025, if you're ages 60 to 63 on the last day of the calendar year and your plan allows, you may be able to save an additional $3,750 in catch-up contributions.

If you have a traditional or Roth IRA, your contribution limit is $7,000. And if you’re age 50 or older—and meet the income requirements—you can make a catch-up contribution of $1,000 for a total of $8,000.

They can give you more retirement income

Catch-up contributions can make a big difference. Here’s an example: Tom and Mike are both age 50. Tom saves $23,500 a year in the plan. Mike saves $31,000 a year, including his catch-up contributions.

All that extra savings adds up. By the time they retire at age 65, Mike will have $174,570 more in savings than Tom.* But here’s the important part. Extra savings will mean extra income for Mike. Mike will have almost $7,000 more a year in retirement income than Tom, assuming they each withdraw 4% of their savings each year.

*Assumes a 6% average annual return. This is an example only. It doesn't represent a real investment, and the rate of return is not guaranteed. The account balance is before any taxes. It does not reflect the 10% federal penalty tax you may have to pay if you take money out before age 59½.

They can give you an even bigger tax break

When you contribute to your plan, you have more in retirement savings and also gain a tax advantage. Those benefits get larger with catch-up contributions. But to get the tax benefits of catch-up contributions, you’ll need to raise your retirement plan savings rate.

How to calculate your savings increase

Peggy will reach age 50 next year. She decides to make catch-up contributions. To calculate her savings rate, she divides her salary of $150,000 by $31,000—the full savings amount allowed for people who are eligible to make catch-up contributions because they’re age 50 or older. Peggy sees she needs to save about 21% of her pay starting in January. Peggy currently contributes 15% of her pay to the plan. So she will need to increase her savings rate by 6 percentage points at year-end.*

*Hypothetical example.

Whenever you invest, there’s a chance you could lose the money.