Maximizing Retirement Savings: The Power of Catch-Up Contributions

Taxpayers 50 years or older can use catch-up contributions to “supercharge” their retirement. But, what does this mean for you?

IRA Contribution Limitations

For 2025, individuals may contribute up to $7,000 or their earned income, whichever is less, to a traditional or Roth IRA. Those who are 50 years old or older by the end of 2025 are eligible for an additional $1,000 catch-up contribution. Contributions for the 2025 tax year can be made until April 15, 2026.

You can create tax savings by making extra deductible contributions to a traditional IRA. However, if you or your spouse are participants in an employer’s retirement plan and your Modified Adjusted Gross Income (MAGI) exceeds certain levels, your deduction will be limited.

Roth IRA contributions aren't tax-deductible, but qualified withdrawals after age 59½ are tax-free. Income limits apply to Roth IRA contributions; higher earners may instead contribute to traditional IRAs and benefit from tax-deferred growth.

Employer Plan Contribution Limitations

In 2025, you can contribute up to $23,500 to an employer’s 401(k), 403(b) or 457 retirement plan. Taxpayers 50 years and older can contribute an additional $7,500  —  if your plan allows it. Your HR department would know more about your retirement plan limitations. Reach out to learn more if you’re interested in making extra contributions to your employer’s plan.

Contributions lower your taxable wages, giving you a federal income tax deduction. You can use these savings for extra catch-up contributions or invest them in a taxable retirement account to boost your retirement funds.

So, how much can you actually save by using the “catch-up” method? Let's look at some scenarios to show the impact of catch-up contributions.

Example 1: If you’re 50 and contribute an extra $1,000 each year to your IRA for 15 years, by 65 you could have approximately $21,000 with a 4% annual return or $27,000 with an 8% annual return.

Keep in mind that making larger deductible contributions to a traditional IRA can also lower your tax bill. Making additional contributions to a Roth IRA won’t, but they’ll allow you to take more tax-free withdrawals later in life. 

Example 2: If an individual turns age 50 next year and contributes an additional $7,500 to a company retirement plan beginning in 2026 and continues this contribution for the following 15 years, your account —  with a 4% annual return would be $150,000, and with an 8% annual return reach $200,000 when you turn 65.

Once again, making larger contributions can also lower your tax bill. 

Example 3: Finally, let’s say you’ll turn 50 next year and you’re eligible to contribute an extra $1,000 to your IRA for 2026, plus you make an extra $7,500 contribution to your company plan for the next 15 years. Here’s how much extra you could have in the two accounts combined (rounded to the nearest $1,000) — $171,000 with an 4% annual return, and $227,000 with an 8% annual return.

Catch-up contributions represent an effective method for increasing retirement savings. If your spouse also qualifies, the potential benefits may be significantly enhanced. Please contact us with any questions or to discuss how this strategy may complement your tax planning.