Turning 50 in 2024? Make This One Simple Money Move

If you're middle aged, hopefully your career is going better than ever. People tend to earn more money as they get older, and for many people, their 40s and 50s are some of their peak earning years. If you're 50 or over, it's especially important to take advantage of the opportunity to save for retirement.

A recent survey from the MIT AgeLab found that "Midlifers" have a strong desire to retire. In fact, 74% of people in their 50s said that being able to retire is extremely important to them, but only 57% actually expect to be able to retire. People in middle age are often struggling to balance a lot of competing financial demands. At age 50, you might be trying to save for college for your kids, caring for older adult loved ones, or dealing with the costs of raising children. It's all too easy to neglect your own retirement savings while caring for everyone else in your life.

If you're turning 50 in 2024, you need to know about one simple money move that could supercharge your retirement savings. Not everyone will have enough extra cash flow in their budget to make this move. But if you can do it, you'll be more likely to retire in comfort.

Let's see what this one retirement savings move is all about.

Supercharge your retirement savings with catch-up contributions

If you have a 401(k) or other qualified retirement plan at work, and you're age 50 or older, the IRS wants to encourage you to invest for retirement. It's called a "catch-up contribution."

With a catch-up contribution, people ages 50 and over are allowed to put an extra $7,500 into their 401(k) for 2024. The regular limit on 401(k) contributions is $23,000. So with the extra catch-up contribution money, that means that if you're age 50 or over, you can put a total of $30,500 of your salary, pre-tax, into your 401(k) for 2024.

Catch-up contributions are also available for traditional IRAs and Roth IRAs. For 2024, people age 49 and younger can put $7,000 into IRAs (Roth and traditional combined). People age 50 or over can make an extra $1,000 catch-up contribution, bringing their IRA total to $8,000 for 2024.

Keep in mind that if you or your spouse also have a 401(k) or other retirement plan at work, some income limits apply when using traditional IRAs and Roth IRAs. If you're a higher earner, you might not be able to use a Roth IRA or get a tax deduction on all the money you put into your traditional IRA in 2024.

Who should use catch-up contributions to save for retirement?

If you're a higher-income "Midlifer" in your 40s and 50s, socking away more money for retirement is a good strategy. You should consider maxing out your 401(k) and other retirement accounts during your peak earning years. Every dollar you put into your 401(k) in 2024 doesn't count toward your taxable income in 2024. Maxing out your 401(k) can help reduce your adjusted gross income (AGI) that helps you qualify for a tax-deductible traditional IRA or Roth IRA.

Here are a few examples of how high-earners at age 50-plus can maximize retirement savings (and tax savings).

Bill and Karla, both age 50, married filing jointly

Bill is age 50 with a salary of $125,000, married to Karla, also age 50, with a salary of $40,000. In 2024, Bill can put a total of $30,500 of salary into a 401(k). This reduces Bill's W-2 wages for tax purposes to $94,500. And Karla puts $8,000 into her 401(k), leaving W-2 wages of $32,000.

After those 401(k) contributions, Bill and Karla have a combined adjusted gross income (AGI) of $126,500. They want to put extra money into a traditional IRA -- and they can. But with that level of income, Bill and Karla won't get a tax deduction for all of their IRA contributions. Their combined income of $126,500 puts Bill and Karla in the tax deduction "phaseout range" for a traditional IRA ($123,000–$143,000 of income for married couples filing jointly).

Bill and Karla can still put up to $8,000 each into a traditional IRA for 2024, but not all of that money will be tax-deductible. Or they can put up to $8,000 (for each spouse) into Roth IRAs -- the income limits are higher.

Jamal, age 50, single

Jamal is single, age 50, with a salary of $107,000. If he saves aggressively, Jamal can put the full $23,000 plus $7,500 catch-up contribution into his 401(k) for 2024. This brings his AGI down to $76,500. Having an AGI below $77,000 means Jamal is eligible to make fully tax deductible contributions to a traditional IRA -- he could put an extra $8,000 into an IRA for 2024, and reduce his taxes even more.

Higher-earning single filers should also consider a Roth IRA, because there's a higher income limit to contribute to a Roth. If you're single and have a retirement plan at work, and your adjustable gross income income is less than $146,000, you can make a full $8,000 contribution to a Roth IRA for 2024.

Bottom line: If you're a higher-income "Midlifer" who wants to save aggressively for retirement, making catch-up contributions after age 50 is a great way to do it. Catch-up contributions to your 401(k) and traditional or Roth IRAs can help you boost your retirement investments and maximize your peak earning years.