Once you turn 50, you become eligible to contribute additional money to your 401(k) plan. This can help you save more for retirement and prepare for the years ahead. The tax deduction of these catch-up contributions could save you over $1,000 on your annual tax bill.
When building your nest egg this year, consider these guidelines for 401(k) catch-up contributions:
— The 401(k) catch-up contribution limit for 2025.
— The tax benefit of a 401(k) catch-up contribution.
— How to make catch-up contributions.
— Roth 401(k) catch-up contributions.
The 401(k) Catch-Up Contribution Limit for 2025
Workers can defer paying income tax on as much as $23,500 on contributions to a 401(k), 403(b) and the federal government’s Thrift Savings Plan in 2025. Once you turn 50, you become eligible to make catch-up contributions of up to $7,500 to your 401(k) plan, bringing the total to $31,000 in tax-deferred contributions. Due to a change made in the SECURE 2.0 Act, the catch-up contribution limit has increased to $11,250 for employees ages 60 to 63 who participate in the plans.
“Catch-up contributions offer a way to save more for retirement during your highest earning years, which can be especially beneficial if you’re behind on your retirement savings,” said Katherine Tierney, a certified financial planner and senior retirement strategist at Edward Jones in St. Louis, in an email.
[READ: 10 Ways to Reduce Taxes on Your Retirement Savings]
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) contribution limit increased from $23,000 in 2024 to $23,500 in 2025. The catch-up contribution limit remained at $7,500 for 2024 and 2025. As of 2025, individuals ages 60 to 63 will be able to make even higher catch-up contributions in employer plans, equal to 150% of the catch-up contribution limit for individuals age 50 and older.
The Tax Benefit of a 401(k) Catch-Up Contribution
The tax advantage of making catch-up contributions can be significant, depending on how much you save and the tax rate you pay. If a worker over 50 pays a 35% tax rate and contributes the full $31,000 to a 401(k), they will reduce their current tax bill by $10,850. This provides an extra $2,625 in tax savings compared to saving only $23,500.
A worker who pays a 24% tax rate and contributes $31,000 will save $7,440 in taxes. That’s $1,800 more than younger workers who would save $5,640 by contributing $23,500. Income tax will be due on the money in your 401(k) plan once it is withdrawn from the account.
“Any annual contribution that is deducted from your taxable income potentially lowers your tax bracket,” said Jeremy Callegan, a financial advisor at CoSource Financial Group in New Orleans, in an email. “As a result, you pay less in income tax during your working years, which frees up more money for saving and investing.”
How to Make Catch-Up Contributions
Making a catch-up contribution means you contribute between $23,500 and $31,000 to your 401(k) plan at age 50 or older in 2025, or up to $34,750 if you are between ages 60 and 63. Most 401(k) contributions are deductions from employee paychecks. To save $31,000 in a 401(k) plan, a worker age 50 or older would need to contribute $2,583.33 per month or $1,291.67 per twice-monthly paycheck.
While almost all 401(k) plans permit catch-up contributions, many older workers find it difficult to save $31,000 in a 401(k) plan. A worker earning $105,000 would need to save about 30% of their pay to fully take advantage of catch-up contributions. And someone earning $60,000 would need to tuck away more than half of their income into a 401(k) to get the maximum possible tax break.
Some employers offer to match up to a certain percentage or amount of your contribution, which could help boost your retirement fund. If you’re looking for a starting point to save, “aim for 10% to 15% of your income, and maximize employer matching if available,” said Jared Weitz, CEO of United Capital Source in Garden City, New York, in an email. “Regularly monitor and adjust your contributions and investments as your goals evolve.”
[Read: How to Build a Balanced Retirement Portfolio]
Roth 401(k) Catch-Up Contributions
You can also make catch-up contributions to Roth 401(k)s. While you don’t receive 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.
“Keep in mind, though, that not everyone needs to save this high of an amount to support their lifestyle in retirement,” Tierney said. “If you’re already on track for retirement based on your current savings rate, you may want to consider putting those extra funds toward other goals instead.”
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How to Take Advantage of 401(k) Catch-Up Contributions originally appeared on usnews.com
Update 04/21/25: This story was published at an earlier date and has been updated with new information.
