Not everyone manages to start saving for retirement early in their careers. Student loans, entry-level wages, and other constraints could make it difficult to really focus on building a retirement nest egg until your 30s, 40s, or even beyond.
The good news is that if you have a 401(k) plan, you're allowed to make catch-up contributions once you turn 50. And you don't need to be "behind" on retirement savings to do so.
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There's no specific balance that renders you eligible or ineligible for catch-up contributions. It's strictly an age thing.
This year, savers 50 and over can make a 401(k) catch-up of $8,000. But if you're between the ages of 60 and 63, you have an even greater opportunity to boost your savings.
A special option for people in their early 60s
The years leading up to retirement are often when workers have the greatest ability to save. Many people in their early 60s have paid off major expenses like mortgages or children's college costs, while others are earning peak salaries after decades in the workforce.
Thanks to a recent rule, savers between the ages of 60 and 63 can now make a "super catch-up" in their 401(k)s worth $11,250. That allowance replaces the regular $8,000 catch-up -- it doesn't get stacked on top of it.
But all told, you could put up to $35,750 into your 401(k) this year if you're 60 to 63 years old. And it pays to do so even if you're happy with your 401(k) balance.
With a traditional 401(k), contributions go in tax-free. So even if the extra money won't make a meaningful difference in your retirement plan balance, you can still shield that much income from taxes in the near term.
And if you're making that catch-up in a Roth 401(k), once the money is in your account, it gets to grow tax-free. That's a win, too.
Make the most of this limited-time opportunity
You may find it odd that the new 401(k) rules apply to savers between ages 60 and 63 only. And you wouldn't be alone.
But once you turn 64, the extra catch-up is no longer on the table. So it pays to take advantage of it during that narrow window while you can. If anything, it's a good way to enjoy a tax break on a portion of your income while setting yourself up with additional funds to make the most of in retirement.
