Maximize Your Retirement Accounts After 50: Catch-Up Contributions & IRA Strategies

Are you over 50 and behind on your retirement plans? It’s a common challenge. Many people are realizing they don’t have nearly enough saved up, and if they don’t do something soon, they may have to delay their retirement. Catch-up contributions and IRA strategies, along with other retirement saving tactics can give you the tools you need to secure your dream retirement.

Estimating Your Retirement Income Needs

Many people set $1 million as a retirement savings goal. It’s a nice, round number, and it sounds like a lot of money. If you’re a millionaire, you’ve got to be set – right?

In reality, the goal of $1 million is rather arbitrary. You may need more or less depending on where you live, your lifestyle, the length of your retirement, your financial strategies and your expected costs.

When calculating expected costs, many people focus on housing. However, health care is another crucial consideration. Unfortunately, many retirees underestimate how much they’ll spend on health care during retirement. Although most people who are 65 or older qualify for Medicare, Medicare enrollees still have to pay premiums, deductibles and copays.

Based on federal data, Money Talks News says the average U.S. household led by someone who is age 65 or older spent an average of $8,027 on health care in 2023. Over a 25-year period, that would add up to more than $200,000 just for health care, and that’s without accounting for inflation or rising medical costs.

Strategies to Help Cover Retirement Costs

If you’re in your 50s or 60s, there may still be time to secure your financial future with smart retirement planning strategies, such as IRA catch-up contributions and annuity income streams. Consider the following tactics:

1. Save as much as possible. It’s easy to put off savings when you have other priorities competing for your money. However, if you don’t make retirement a priority too, you may come to regret it when you realize you don’t have enough savings. Create a budget that includes retirement savings. As your income increases, resist lifestyle creep and instead put away more money in a retirement fund.
2. Take advantage of employer matches and tax incentives. If your employer offers a retirement plan with employer matching, it’s smart to contribute as much as you’re allowed. Also take advantage of tax incentives. Some accounts, such as a traditional IRA, may allow you to deduct your contributions, while other accounts, such as a Roth IRA, let you take tax-free qualified distributions.
3. Use catch-up contributions in your 50s and 60s. The IRS sets contribution limits for tax-advantaged retirement plans. Once you hit 50, you’re allowed to make additional catch-up contributions to your retirement savings accounts. This is a smart way to boost your savings before you retire.
4. Consider converting some funds into an annuity for guaranteed income. Maximizing your 401(k) or IRA plan can be a smart way to save for retirement. However, these strategies can also be vulnerable to market volatility, and some retirees worry about running out of money. As you approach retirement, consider diversifying your portfolio by converting some of your funds to another retirement tool, such as an annuity that provides guaranteed lifetime income.

Catch Up Contributions

Once you reach your 50s, you may have more money to allocate toward your retirement This is a good time to consider catch-up retirement contributions. To understand why IRS catch-up contributions are so important, it’s helpful to understand a little about contribution limits.

The IRS sets contribution limits for tax-advantaged accounts, including IRAs, 401(k) plans and HSAs. These limits may be adjusted each year to account for inflation. If you accidentally contribute too much, you’ll need to contact your plan administrator to have it fixed quickly. Otherwise, the IRS warns you could be taxed twice – first when the amount is included in your taxable income for the year and then again when the amount is distributed from the plan.

To maximize tax advantages, many workers contribute as much as they’re allowed, and they wish they could contribute more. For older workers, catch-up contributions let them do this, at least to a certain extent.

When Can I Make IRA Catch Up Contributions?

You become eligible for IRA catch-up contributions once you turn 50. As long as you turn 50 at some point during the calendar year, you can make the annual catch-up contribution during that year. You can then continue to make catch-up contributions each year after that.

The IRS says that IRA catch-up contributions are due by the due date of your tax return.

For 2024 and 2025, the total maximum contribution for all of your traditional IRAs and Roth IRAs is $7,000. If you’re at least 50 years old, you can make an additional $1,000 catch-up contribution, so your maximum contribution is $8,000.

Alternative Strategies to a Catch-Up IRA Contribution

Catch-up IRA contributions are a savvy way to make your dollars stretch further. If you can take advantage of the higher contribution limits for older workers, you should seriously consider doing so. However, IRA catch-up contributions may not solve all of your retirement planning needs. For example:

• You may have already maxed out your catch-up limits. Being able to contribute $1,000 extra is nice, but once you do that, you’re at your max. If you’re still interested in putting more away toward your retirement, you’ll need to find new strategies.
• You may be looking for a retirement income strategy, not a retirement savings strategy. IRA catch-up contributions are great if you want to save more, but what if you’ve already saved a lot, and now you’re trying to switch gears and think about your retirement income? If that’s where you are in your retirement planning, it’s time to start looking at new strategies.

If either of these scenarios sound familiar, you may need to look beyond IRAs and other similar retirement accounts. For many older workers, this search has led to annuities.

How Do Annuities Work with an IRA?

An annuity is a contract between the annuity owner and an insurance company. The annuity owner pays a premium to buy the annuity, and in exchange, the insurance company provides payments. These payments may last for a set period of time, but they can also be set up to provide guaranteed income for the rest of the annuity owner’s life.

Many retirees have turned to annuities as a way to secure guaranteed retirement income. This option is especially attractive to retirees who are worried about outliving their retirement savings.

If you have an IRA, you can add an annuity to your retirement strategy.

• Option 1: Buy an annuity once you’ve maxed out your IRA contributions. If you’ve hit your limits but you have more money that you want to put toward retirement, consider using the excess funds to purchase an annuity.
• Option 2: Convert some or all of your IRA funds to an annuity. If you’re ready to start thinking about your withdrawal strategy and you want to make sure you don’t run out of money in retirement, an annuity could be the solution you’re looking for. You can rollover your IRA funds into an annuity – just make sure you follow IRS rules to avoid a tax penalty.

Are you interested in an annuity? There are many options – and some are better than others! The Forever Fund offers a variety of payout options designed to meet different retirement goals. Whether you're looking for lifetime income, guaranteed payments for a set period, protection for your beneficiaries, or payments that grow over time, there’s an option to fit your needs.

Get an estimate and learn more.