According to the investment firm Fidelity, it’s recommended that Americans accumulate six times their annual income in a retirement account by the age of 50. For example, a 50-year-old earning $70,000 annually should ideally have a 401(k) or Individual Retirement Account (IRA) with $420,000 or more. Those who haven’t reached this milestone are encouraged to save more through budgeting, potentially utilizing a top-rated budgeting app. Alternatively, individuals with insufficient savings can enhance their income by taking on side gigs or working overtime if possible.
The positive aspect is that once additional funds are available for investment, the IRS permits “catch-up” contributions for those approaching retirement age. As the term suggests, this policy assists older workers who have not saved enough or those who wish to contribute more. Although catch-up contributions have existed since 2001, not all investors are aware of this option, which is accessible to individuals aged 50 and older. It’s important to note that catch-up contribution limits often adjust to account for inflation.
Better late than never
To understand catch-up contributions, note that as of 2025, employees can contribute a maximum of $23,500 annually to their employer-sponsored 401(k) plans. However, those aged 50 or older can contribute an additional $7,500 per year, totaling $31,000. Furthermore, individuals aged 60, 61, 62, and 63 can make even larger catch-up contributions—$11,250 beyond the regular $23,500 limit.
These catch-up contributions aren’t limited to 401(k) plans. Owners of specific employment-related retirement accounts like 403(b) and 457 plans can also contribute extra after age 50. Freelancers or independent contractors without access to a 401(k) might consider opening an IRA. Additionally, IRAs can be established alongside 401(k) accounts for those eager to boost their retirement savings. IRAs also offer catch-up contributions for those over 50, though the limits are lower compared to 401(k)s.
Don’t accidentally overdo it
For 2025, IRA catch-up rules allow an additional $1,000 on top of the standard $7,000 annual contribution limit. It’s crucial to understand that this limit applies to all IRA accounts held by an investor, not each account individually. For example, if you possess both a regular IRA and a Roth IRA, the current annual contribution limit for someone aged 50 or older is $8,000 across both accounts. This means you could allocate $3,000 to one account and $5,000 to the other. If you inadvertently contribute too much to your IRA account, you must promptly withdraw the excess funds and any associated earnings, which will be taxed as regular income.
Lastly, it’s vital to take advantage of matching contributions to a retirement account if your employer offers this benefit. According to the investment firm Vanguard, the average employer match in 2024 was 4.6%. For an employee earning $60,000 per year, this translates to $2,760 in free money. Even if you can’t afford to maximize your retirement account contributions, prioritize contributing at least up to the employer match limit to potentially avoid the need to catch up after reaching 50.
