How Do 401(k) Catch-Up Contributions Work?

Even if you got a late start saving for retirement, you still have options. One of the most powerful tools for people over 50 is the 401(k) catch-up contribution.

In 2025, the rules around catch-up contributions are more generous than ever, especially for people between the ages of 60 and 63. Whether you’re looking to maximize your retirement fund or you’re a small business owner figuring out how to save for yourself, catch-up contributions can make a meaningful difference.

In this guide, we’ll walk you through everything you need to know about 401(k) catch-up contributions, from eligibility requirements to potential tax benefits.

What are 401(k) catch-up contributions?

Once you turn 50, the IRS lets you contribute more to your 401(k) than younger workers. This extra amount, called a catch-up contribution, is designed to help you boost your retirement savings during your peak earning years.

As of 2025, if you’re 50 or older, you can contribute up to $7,500 more on top of the standard $23,500 limit. That means your total limit jumps to $31,000. If you’re between 60 and 63, you can contribute even more, up to $11,250 extra (for a total of $34,750). Some plans may also include a catch-up contribution match, giving you an even greater boost toward your retirement savings if your employer offers one.

What are the eligibility requirements?

Age 50 or older: You’re eligible in the calendar year you turn 50. That means anyone who will be 50 by December 31 can contribute above the standard limit. Once eligible, you can make catch-up contributions every year moving forward.

Under new rules set out in the SECURE 2.0 Act, from ages 60 to 63, you can make super catch-up contributions in the amount of $11,250. At age 64, the 401(k) catch-up limit returns to the standard amount.

Income considerations: There’s no income cap to contribute more. If you’re 50 or older and your plan allows it, you can contribute more. Starting in 2026, however, if you earned more than $145,000 in the previous tax year, catch-up contributions must be made as Roth (after-tax). If your plan doesn’t offer a Roth option, you won’t be able to make catch-ups unless your employer updates the plan.

How do catch-up contributions work (Traditional vs. Roth)?

Catch-up contributions are part of your 401(k), not a separate account. That means they follow your plan’s rules, including the 10% early withdrawal penalty before age 59½ (unless exceptions apply) and the same creditor protections.

You can make catch-up contributions as either traditional (pre-tax) or Roth (after-tax), depending on your plan. They follow the same tax treatment as the rest of your 401(k).

Which one you choose depends on your tax strategy: traditional contributions lower your taxable income now; Roth contributions provide tax-free income in retirement. Many people nearing retirement age use a mix of both for greater flexibility.

Just remember that your total contribution, including catch-ups, cannot exceed the annual total contribution limit of $31,000 ($34,750 if you’re between the ages of 60 and 63). You can divide that amount between traditional and Roth, but not exceed the total.

What are the tax benefits of making catch-up contributions?

Catch-up contributions offer tax advantages both now and later.

Traditional contributions reduce your taxable income today. If you’re in your peak earning years, this can make a real difference. An extra $7,500 contribution could lower your tax bill by $1,800–$2,500, depending on your bracket.

Roth contributions don’t give you an upfront deduction, but your money grows tax-free, and qualified withdrawals in retirement aren’t taxed. This can be a smart move if you expect to be in a higher tax bracket later, or want to reduce required distributions.

Since 401(k) catch-up limits are much higher than IRA catch-ups, you’re getting a much bigger tax-advantage window to work with. You can also use catch-ups to diversify your tax and retirement saving strategies by building up both pre-tax and Roth savings to give yourself more flexibility in retirement.

Why do catch-up contributions matter if you’re nearing retirement?

They close the savings gap. Many people hit their 50s only to realize that their retirement savings are less than what they’ll need. Catch-up contributions are specifically designed for this scenario, giving you a chance to compensate by maximizing savings.
They align with peak earning years. Your 50s are often your highest earning years. Catch-ups acknowledge this by letting you make larger contributions at this time, while, ideally, other major expenses like tuition or mortgages are tapering off.
They offer tax planning flexibility. Catch-up contributions help you fine-tune your tax strategy before retirement. You can shift your balance between traditional and Roth to prepare for future needs.
They give you peace of mind. Catch-up contributions let you take full advantage of what’s available, so you can retire confidently knowing you’re not leaving any money on the table.

What is the importance of catch-up contributions if you’re a small business owner?

You can save more when your business is doing well. When it comes to investment strategies, many business owners often reinvest everything early on. Catch-up contributions let you accelerate savings later, when profits are stronger.
They offer tax savings on two fronts. As your own employee, traditional contributions provide tax reductions for both your company’s payroll taxes and your personal taxable income.
You can maximize your benefits regardless of employee participation. Unlike regular contributions, catch-ups aren’t subject to nondiscrimination testing. That means you can still contribute the full catch-up amount even if your employees aren’t contributing much.

Get Ready for Retirement the Right Way

Catch-up contributions are one of the most effective retirement savings strategies to supercharge your savings and lower your tax bill as you get closer to retirement. If you’re getting serious about retiring in the next five to ten years, they can help you make up for lost time or take advantage of a higher income to retire on your own terms—especially if you’re a business owner.

If you want to make the most of the opportunities available to you, we can help with retirement planning by building a strategy that fits your life and goals. At Chatterton & Associates, we help small business owners and folks nearing retirement prepare for the next stages of their lives. Feel free to contact us to learn more about our retirement planning services.

Sincerely,

The Team at Chatterton & Associates