It’s never too late to start saving for retirement. If you’re over 50, the IRS provides a significant advantage through catch-up contributions, allowing you to contribute beyond the annual limit to certain retirement accounts. In 2024, you can contribute an additional $7,500 to qualified employer-sponsored retirement plans, including:

• 401(k) plans, other than SIMPLE 401(k) plans
• 403(b) plans
• SARSEP plans
• Governmental 457(b) plans
• The federal government's Thrift Savings Plan

For IRAs, you can contribute an extra $1,000, bringing the total possible contribution to $7,500 for those aged 50 and older. To qualify for these extra contributions, you must turn 50 by the end of the calendar year.

Understanding catch-up contributions

Catch-up contributions allow older taxpayers to boost their retirement savings as they approach retirement. The IRS sets annual contribution limits for retirement accounts, but catch-up contributions let those over 50 accelerate their savings. For 2024, the standard contribution limit is $23,000 for 401(k), 403(b), SARSEP, and governmental 457(b) plans. With the additional $7,500 catch-up contribution, those 50 and older can contribute up to $30,500 annually.

Maximizing these contributions is a smart financial move. If your employer matches your contributions, you receive free money. Even without a match, the pre-tax nature of these contributions reduces your taxable income for the year, resulting in significant tax savings.

Roth vs. Traditional Retirement Plans

Consider your current and future tax situations when choosing between Roth and traditional retirement plans. Roth plans require you to pay taxes upfront, but withdrawals in retirement are tax-free. This can benefit you if you expect a higher tax bracket. Traditional plans offer tax-deferred growth, with taxes paid upon withdrawal, which might be advantageous if you anticipate being in a lower tax bracket after retiring.

If you already participate in a traditional TSP or another plan, you can direct future contributions to a Roth option, but you cannot convert existing contributions to Roth status. This strategic choice significantly affects your overall retirement planning, especially when considering tax diversification.

Contribution Limits for 2024

For 2024, the IRS has set the following contribution limits: Employee Contribution Limit: Up to $23,000 annually.

• Total Contribution Limit: Including both employee and employer contributions, up to $69,000 annually.
• Catch-Up Contribution: If you're 50 or older, you can contribute an additional $7,500 annually.

These limits also apply to uniformed servicemembers. However, contributions from tax-free combat pay do not count towards these limits, allowing servicemembers in combat zones to maximize their retirement savings.

Phase-Out Ranges for 2024

The IRS updated the income ranges to determine eligibility for deductible contributions to traditional IRAs, contributions to Roth IRAs, and the Saver's Credit. Here are the phase-out ranges for 2024:

• Traditional IRA Phase-Out for Single Taxpayers: $77,000 to $87,000.
• Traditional IRA Phase-Out for Married Couples Filing Jointly: $123,000 to $143,000 (if the contributing spouse is covered by a workplace retirement plan).
• Roth IRA Phase-Out for Singles and Heads of Household: $146,000 to $161,000.
• Roth IRA Phase-Out for Married Couples Filing Jointly: $230,000 to $240,000.

Bottom line

Even if you can't max out your retirement contributions, aim to save as much as possible. If you're over 50, take advantage of catch-up contributions to boost your savings. Consult with a Certified Financial Planner® to optimize your retirement strategy and ensure you maximize your savings opportunities.

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