Why should I take advantage of catch-up contributions?
Catch-up contributions provide many of the same advantages as saving to a 401(k) plan in the first place. If they are made on a pre-tax basis, your tax bill may be reduced this year. And contributing more to your 401(k) will likely give you a bigger nest egg in retirement. In fact, if you start saving an additional $7,500 every year at age 50, you’ll have contributed well over $100,000 by the time you turn 65. The balance could be higher or lower, depending on how you invest your money and market performance.
Aside from growing your retirement nest egg, making catch-up contributions can also help you learn to live off a lower income. When retirement comes around, you’ll be accustomed to spending less, which will help stretch your retirement savings further.
However, catch-up contributions are not for everyone. Saving for retirement is important, but so is having enough money to pay for the life you live today. You should not be making extreme sacrifices to set aside extra funds for your golden years. If you’re over age 50, hitting the 401(k) contribution limit and comfortably covering your current expenses, then you may want to consider making catch-up contributions.