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50 or older? 4 ways to catch up your savings

Key takeaways

  • If you're over age 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) 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.

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 that people age 50 and older can increase their tax-advantaged contributions to IRAs, 401(k)s, and HSAs (starting at age 55).

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 at the beginning of each year for the next 20 years, and it earns an average return of 7% a year, you could have almost $44,000 more in your account than someone who didn't take advantage of the catch-up.1 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:

2023 catch-up opportunities

  • Traditional and Roth IRAs: $1,000
  • SIMPLE IRA: $3,500
  • 401(k), Roth 401(k) or similar plan: $7,500
  • Health savings account (HSA): $1,000
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1. Know if your retirement saving is on track

Are you on track to cover essential expenses in retirement? 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.

Tip: Want a more in-depth analysis of your retirement readiness? Visit Fidelity's Planning & Guidance Center.

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 IRAs to $7,500 in 2023.
  • 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 $7,500 a year. That means you can contribute up to $30,000 in 2023. (The SECURE 2.0 Act of 2022 introduced new requirements for high earners: Starting in 2024, if you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from the Roth requirement.)
  • Participants in a SIMPLE IRA or 401(k), designed for self-employed individuals and small businesses, can take advantage of a $3,500 catch-up contribution, bringing their total contribution potential to $19,000 for 2023. (The SECURE 2.0 Act of 2022 introduced new contribution limits for some plans starting in 2024. If your plan qualifies, you may be able to contribute an additional 10%.)

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 taxable.2 These traditional accounts also offer tax-deferred compounding. With Roth IRAs, you pay taxes up front but qualified withdrawals are tax-free when you reach age 59½, assuming certain conditions are met.3 Roth IRAs offer the potential for tax-free compounding. That means you'll have more tax-free money available to work for you than in a fully taxable account.

Tip: Compare IRA options—traditional or Roth—to see which might be right for you.

If your employer offers a high-deductible health care plan (HDHP) with an HSA, you may want to consider electing the HDHP and opening an HSA. HSAs have a unique triple tax advantage4 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-free5 and be used to pay for future qualified medical expenses, including those in retirement. If you don't reimburse medical expenses in the current year, keep your receipts. You may reimburse yourself for past year expenses, as long as you incurred your qualified medical expense after you established your HSA.

For more on HSAs, read Viewpoints on Fidelity.com: 5 ways HSAs can fortify your retirement

Tip: Learn more about HSAs and consider opening a Fidelity HSA. Since HSAs are portable, you can transfer account balances in HSAs from any of your previous employers to a Fidelity HSA.3

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. Employees who receive company stock through equity compensation plans should consider that in determining asset allocation and concentrated stock position risk.

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.

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 1 for 20 years; an annual contribution limit of $6,500; 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. 2. 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. 3. A qualified distribution from a Roth IRA is tax-free and penalty-free. To be considered a qualified distribution, the 5-year aging requirement has to be satisfied and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them). 4. 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. 5.

With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation.

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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