Saving for retirement is tough at any age, but it's especially difficult for young workers who are earning modest salaries and saving up for more immediate goals, like buying a home or starting a family. This means a lot of people have smaller nest eggs than they'd like by the time they reach middle age.

Fortunately for some, the rules regarding annual retirement contributions change once you turn 50, and this can help you make up for lost time. Here's what you need to know.

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Catch-up contributions begin at age 50

In 2023, adults under 50 may only contribute up to $6,500 to an IRA and $22,500 to a 401(k). If you have access to both types of accounts, you may be able to set aside plenty of money for retirement. But if you only have access to an IRA, you might be unable to save as much as you'd like, due to the low annual contribution limit.

To help combat this, the government allows catch-up contributions for adults 50 and older. If you're at least 50 by the end of 2023, you may set aside an extra $1,000 in your IRA and an extra $7,500 in a 401(k). This brings the annual contribution limits for these savers to $7,500 and $30,000, respectively.

You may contribute up to these higher limits, as long as you'll turn 50 or older at some point in 2023, even if that's on the last day of the year. There's no need to wait until your birthday to set aside any extra funds.

The effect of catch-up contributions

A few thousand dollars in catch-up contributions may not seem like it would make a significant difference to your retirement balance, but that depends on how far you are from retirement. If you plan to quit the workforce in your mid- to late 50s, your catch-up contributions may not have much time to grow before you begin withdrawing them.

But if you don't retire until you're 70, your earnings on your catch-up contributions could be pretty significant. If you turn 50 in 2023 and set aside an extra $7,500 in your 401(k), which earns an 8% average annual rate of return, that single catch-up contribution would be worth close to $35,000 in 20 years. And if you make catch-up contributions every year, you could end up with a lot more.

How to find more money for catch-up contributions

The most difficult thing about catch-up contributions is finding the extra money to put into your retirement account. If you don't have the spare cash lying around, you may have to rethink your budget. Cutting back on spending is one option, but you could also look for ways to increase the money you have coming in.

This might involve finding a better-paying job elsewhere, negotiating a raise with your current employer, or starting a side business. You could also use a combination of these strategies.

If you choose to make catch-up contributions a part of your savings strategy going forward, remember to check the annual contribution limits each year. The government periodically changes how much workers under and over 50 are able to set aside in their retirement accounts, so in the future, you may be able to save even more than you can in 2023.