How to take advantage of 401(k) catch-up contributions

When you turn 50, you become eligible to contribute more money to your 401(k) plan. The tax deduction you can claim on these catch-up contributions could save you over $1,000 on your annual tax bill. Here’s how to take advantage of 401(k) catch-up contributions:

The 401(k) Catch-Up Contribution Limit for 2023

Workers can defer paying income tax on as much as $22,500 that they contribute to a 401(k), 403(b) and the federal government’s Thrift Savings Plan in 2023. Once you turn 50, you become eligible to make additional catch-up contributions of up to $7,500 to your 401(k) plan, for a total of $30,000 you can temporarily shield from income tax.

“The additional $7,500 permits employees who may be a little behind in saving for retirement to catch up a bit,” says Robert Falcon, a certified financial planner for Falcon Wealth Managers in Concordville, Pennsylvania.

[Read: How Much Should You Contribute to a 401(k)?]

The 401(k) Catch-Up Contribution Age

Catch-up contributions allow workers age 50 and older to save more for retirement in a 401(k) plan. You can make catch-up contributions at any time during the calendar year in which you will turn 50, even if you have not yet reached your 50th birthday.

The 401(k) catch-up contribution limit increased by $1,000 for 2023. “Many savers will need to increase the percentage they contribute to their 401(k) if they want to make the maximum contribution for the year,” says Danielle Seurkamp, a certified financial planner for Well Spent Wealth Planning in Cincinnati. “Adjusting the contribution percentage as early in the year as possible will give you the smallest overall reduction to your take-home pay, so don’t wait to adjust if you want to contribute the maximum amount for the year.”

The Tax Benefit of a 401(k) Catch-Up Contribution

The tax advantage of making catch-up contributions can be huge. If a worker over 50 who is in the 35% tax bracket contributes the full $30,000 to a 401(k), he will reduce his current tax bill by $10,500, an extra $2,625 in tax savings.

A worker in the 24% tax bracket who contributes the same amount would save $7,200 in taxes, $1,800 more than younger workers. Income tax won’t be due on the money in your 401(k) plan until it is withdrawn from the account. And if you drop into a lower tax bracket in retirement, you will pay that lower rate on 401(k) distributions.

Making catch-up contributions can significantly improve your 401(k) account balance in the years leading up to retirement. “The later years of your working life are often the years you will be in the highest tax bracket, so taking advantage of 401(k) contributions can meaningfully reduce your total tax bill,” Seurkamp says. “For example, if you are in the 32% bracket, a $30,000 contribution to your 401(k) would reduce your federal tax bill by $9,600. That means it only costs you $20,400 to put $30,000 to work inside your 401(k).”

[Read: New 401(k) Contribution Limits for 2023]

How to Make Catch-Up Contributions

Making a catch-up contribution means you contribute between $22,500 and $30,000 to your 401(k) plan at age 50 or older in 2023. Most 401(k) contributions are deductions from employee paychecks. To take full advantage of a 401(k) plan, a worker age 50 or older would need to contribute $2,500 per month, or $1,250 per twice-monthly paycheck.

Many older workers find it difficult to save $30,000 in a 401(k) plan. A worker earning $100,000 would have to save 30% of their pay to take full advantage of catch-up contributions. And someone earning $50,000 would need to tuck over half of his income into a 401(k) to get the maximum possible tax break.

Almost all 401(k) plans (98%) permit catch-up contributions, but only 16% of participants take advantage of them when they are offered, according to an analysis of Vanguard 401(k) plans. It is primarily workers with high incomes and large account balances who are able to make catch-up contributions, Vanguard found.

[See: 9 Ways to Avoid the 401(k) Early Withdrawal Penalty and Other Fees]

Roth 401(k) Catch-Up Contributions

Catch-up contributions can also be made to Roth 401(k)s. While you don’t get an immediate tax break on the money you contribute to a Roth 401(k), you won’t have to pay income tax on the investment growth in the account and can set yourself up for tax-free withdrawals in retirement.

“Unlike a regular 401(k) contribution, contributions to a Roth 401(k) are not made on a pretax basis, so the employee pays tax on the contribution first, then contributes the funds into the 401(k),” Falcon says. “The good news here is that the employee will never have to pay income taxes on any appreciation that occurs after it is contributed into the Roth 401(k).”

More from U.S. News

How to Set Up Your First 401(k)

A Guide to 401(k) Vesting

How to Claim the Saver’s Credit

How to Take Advantage of 401(k) Catch-Up Contributions originally appeared on

Update 12/08/22: This story was published at an earlier date and has been updated with new information.

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