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50 or older? 4 ways to catch up your savings

See how to save up to $6,000 more in tax-advantaged retirement accounts.

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Key takeaways

  • If you're over 50, taking full advantage of catch-up provisions in tax-advantaged savings accounts can help boost your income in retirement.
  • Traditional and Roth IRAs and 401k(s), as well as HSAs, offer catch-up contributions for those age 50 and over.
  • Even if you're on track with your retirement savings, tax-advantaged accounts can help you build more assets.

2018 catch-up opportunities

  • Traditional and Roths IRAs - $1,000
  • 401(k), Roth 401(k) or similar plan - $6,000
  • SIMPLE IRA - $3,000
  • Health Savings Account (HSA) - $1,000

The notion that turning age 50 means starting to slow down is likely a young person's opinion. People who have hit the big five-oh know better. The prospect of retiring is getting closer, and there's a lot of living ahead. So it's important to ensure you have the money to live the life you've planned.

Fortunately, the federal government recognizes that people approaching retirement age often need to pick up the pace to ensure they have saved enough for retirement. The tax code provides "catch-up" savings opportunities so people aged 50 and older can increase their tax-advantaged contributions to IRAs, 401(k)s, and health savings accounts.

Taking advantage of catch-up contributions can deliver a significant boost to your retirement saving. For example, if you turn 50 this year and put an extra $1,000 into your IRA for the next 20 years, and it earns an average return of 7% a year, you could have almost $41,000 more in your account than someone who didn't take advantage of the catch-up1. And the impact can be even greater for a 401(k) or similar plan, where the catch-up contribution opportunity is larger.

Ready to start catching up with your retirement savings? Here's how:

1. Know if your retirement saving is on track

More than half of households are at risk of not covering essential expenses in retirement, according to a recent Fidelity study of Americans' retirement preparedness2. Some 41% have considered postponing retirement to make sure they can afford health care in retirement.

Are you on track? The first step is to find out how your savings—and savings rate—stack up. To get an indication of how prepared you really are, get your Fidelity Retirement ScoreSM. It takes about 60 seconds to answer 6 simple questions.

Whatever your score or your age, you can take some simple steps to stay on track or improve your retirement readiness. Fidelity Retirement ScoreSM can show you how adjustments to monthly savings, investment style and other factors could impact your preparedness.

2. Make the most of catch-up provisions

Once you reach age 50, catch-up provisions in the tax code allow you to increase your tax-advantaged savings in several types of retirement accounts.

  • For a traditional or Roth IRA, the annual catch-up amount is $1,000, which boosts your total contribution potential to $6,500 in 2018.
  • If you participate in a 401(k), Roth 401(k), 403(b), or similar workplace retirement savings plan, the catch-up opportunity is even greater—up to $6,000 a year. That means you can contribute up to $24,000 in 2018.
  • Participants in a SIMPLE IRA or 401(k), designed for self-employed individuals and small businesses, can take advantage of a $3,000 catch-up contribution, bringing their total contribution potential to $15,500 for 2018.

Once you've reached 553, there's another opportunity to make catch-up contributions—Health Savings Accounts, or HSAs. Like in an IRA, the catch-up amount for an HSA is $1,000. With the catch-up, the total HSA contribution potential for 2018 is $4,450 for individuals and $7,850 for families.

3. Harness the power of tax-advantaged accounts

Even if you're on track with your retirement savings, tax-advantaged accounts are attractive long-term investment vehicles and tax-efficient planning tools.

With traditional IRAs or 401(k)s, contributions reduce your taxable income in the current year, as long as you are eligible, though withdrawals are taxable4. These traditional accounts also offer tax-deferred compounding. With Roth IRAs, you pay taxes upfront but withdrawals are tax-free when you reach 59½, assuming certain conditions are met4. Roth IRAs offer the potential for tax-free compounding. That means you'll have more money available to work for you and potentially grow faster than in a fully taxable account.

If your employer offers a high-deductible health care plan (HDHP) with a health savings account (HSA), you may want to consider electing the HDHP and opening an HSA. HSAs have a unique triple tax advantage5 that can make them a powerful savings vehicle for qualified medical expenses in current and future years: Contributions, earnings, and withdrawals are tax free for federal tax purposes.

To make the most of your HSA (if you have access to one and you can afford it), you may want to consider paying for current-year qualified medical expenses out of pocket, and letting your HSA contributions remain invested in your HSA. That way, the money has the potential to grow tax free and be used to pay for future qualified medical expenses, including those in retirement.

For more on HSAs, read Viewpoints on Fidelity.com: Three healthy habits for health savings accounts.

4. Invest for the future

While regular contributions to tax-advantaged retirement accounts may help keep you on track to reach your retirement savings goal, your investment mix (asset allocation) is an important factor, too. Consider whether investing a significant portion of your savings in a mix of US and international stocks and stock mutual funds may help you reach your long-term savings goals, since stocks have historically outperformed bonds and cash over the long term. You may want to think about gradually reducing the percentage of investments that you allocate to stocks as you get older.

Whatever your projected retirement date, your goal should be to have a portfolio with exposure to various types of investments that can provide the opportunity for growth and the potential to outpace inflation, along with investments that offer some degree of risk-reducing diversification. Of course, stocks come with more ups and downs than bonds or cash, so you need to be comfortable with those risks. You should always make sure that your investment mix reflects your time horizon, tolerance for risk, and financial situation.

Read Viewpoints on Fidelity.com: Three reasons to invest in stocks.

Goal: Enjoy retirement

As you plan for the day you retire, taking full advantage of tax-advantaged savings accounts, including catch-up provisions, may help you arrive in a significantly stronger position to enjoy the retirement lifestyle you envision.

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1. This hypothetical example is for illustrative purposes only and is not intended to represent the performance of any security in a Fidelity IRA. The example assumes: annual tax-deferred compounding in an IRA; that annual contributions are made each January 2 for 20 years; an annual contribution limit of $5,500; additional "catch-up" annual limits of $1,000; a hypothetical 7% annual return; and the reinvestment of income dividends and capital gains distributions. Investing in this manner does not ensure a profit or guarantee against loss. Final account balances are prior to any distributions, and taxes may be due upon distribution.
3. Other HSA contribution eligibility rules may apply. Notably, the tax rules do not allow individuals enrolled in non-high deductible coverage, such as Medicare, to make tax-advantaged contributions to an HSA. Medicare enrollment at age 65 for example, may make you ineligible to contribute to an HSA.
4. A distribution from a Roth IRA is tax free and penalty free provided that the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, death, disability, or qualified first-time home purchase.
5. Tax advantages are with respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. See a tax professional for more information on the state tax implications.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Past performance is no guarantee of future results.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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