Traditional IRA Catch-Up Contributions: Are They the Best Move for Your Retirement Plan?

Not everyone is lucky enough to have the means to invest in their retirement early in life. As a result, only 36% of adults who are saving for retirement say that they feel they’ll have enough money to be financially secure in their later years, according to an AARP survey.

However, there are ways to close the retirement gap. If you are age 50 or older, you can contribute additional funds to your traditional individual retirement account (IRA), as well as many other retirement accounts. This allows you to catch up on missed investment opportunities. 

What Are Catch-Up Contributions?

Catch-up contributions help investors aged 50 and older compensate for lost time and missed opportunities to save during their working years. The Internal Revenue Service (IRS) extends the maximum contribution limit on retirement accounts for folks later in their earning years, boosting savings. Several retirement savings plans offer catch-up contributions, including IRAs, SIMPLE 401(k) plans, other employer-sponsored plans, and sometimes even health savings accounts (HSAs).

Key Takeaways

• Catch-up contributions are a way to boost retirement savings, especially for savers who were unable to maximize contributions earlier in their careers. 
• In 2024 and 2025, the IRA contribution maximum for investors 50 years old and older is $8,000.
• Investors of any age can continue to make contributions, including catch-up contributions, to their traditional IRA as long as they have earned income.

Traditional IRA Contribution Limits, Catch-Up Contribution Limits, and Requirements

In the 2024 and 2025 tax years, investors can make a $1,000 catch-up contribution on top of the standard $7,000 contribution limit to an IRA. Like a standard IRA contribution, catch-up contributions are due by the date of your tax return, not including extensions. Investors cannot contribute more than their compensation for that year.

Before the passage of the SECURE Act of 2019, you could only contribute to a traditional IRA until age 70½. However, the legislation lifted those age limits, allowing you to contribute regardless of age, as long as you have earned income. SECURE 2.0 increased the age at which owners must start taking required minimum distributions (RMDs), raising it from 72 to 73.

Even if you leave the workforce at the typical retirement age, this gives you at least 15 years to make catch-up contributions. Not only does it bulk up your savings, but that extra contribution may also allow you to reduce your taxable income by an additional $1,000, depending on your modified adjusted gross income (MAGI) and if a workplace retirement plan covers you or a spouse. 

There may be some years when it’s in your budget and others when it is not, such as if you have different savings goals or if you prefer to have the extra $1,000 on hand for emergency savings. Luckily, catch-up contributions are a year-by-year decision, so you can opt to do it some years and not others.

Tip

The SECURE 2.0 Act raised the age at which you’ll have to take required minimum distributions (RMDs) to 72 or 73, depending on your birth date. However, if you don’t need your traditional IRA’s RMDs, you can reinvest the money in a Roth IRA catch-up contribution as long as you adhere to contribution limits. 

Should You Catch Up Your Traditional IRA Contributions?

Catch-up contributions are an excellent way to maximize your IRA savings, but they might not fit everyone’s needs. 

Catching Up Makes Sense If…

• You couldn’t invest earlier during your earning years and want to make up for lost time.
• Your budget has the space to allot an additional $1,000 on top of the standard $7,000 maximum IRA contribution for the 2024 or 2025 tax year. 
• Your income falls within IRS deduction limits, and you want to decrease your tax liability further through an IRA deduction. 

 Holding Off Makes Sense If…

• You are currently or will soon take withdrawals from a retirement account. 
• You anticipate needing that $1,000 on hand for emergency or other expenses in the next year. 
• You are saving for something else, such as education or a home payment.
• You’ve consistently saved for retirement and feel confident reaching your goal. 

For How Many Years Can You Make Catch-Up Contributions to Your IRA?

You can make catch-up contributions starting the year you turn 50. There are no age limits on making contributions to a traditional IRA, but you do need to have earned income.  

When Are Catch-Up Contributions to an IRA Due?

Similar to standard IRA contributions, catch-up contributions for a given year are due on the tax filing deadline (without extensions). 

What Are the Contribution Limits for 401(k) Accounts?

In the 2024 tax year, investors can contribute a maximum of $23,000, plus an additional $7,500 in catch-up contributions for a total of $30,500 at age 50 or older. For the 2025 tax year, those limits increase to $23,500, plus catch-up contributions that vary by the account holder’s age. Savers aged 50 to 59 or 64 and older can save an additional $7,500. Account holders age 60 to 63 can sock away another $11,250.

Is There a Penalty for Contributing Too Much to an IRA?

Yes. If you contribute too much to your IRA, you must pay a 6% penalty each year for every year the excess funds stay in the IRA.

The Bottom Line

Catch-up contributions are an excellent way to compensate for missed investment opportunities earlier in your working years. Not only does it allow you to save more, but it may reduce your tax liability for the year. If you are concerned about meeting your savings goals and feel comfortable dishing out an additional $1,000 annually, this is a great way to bulk up your retirement savings account.