Strategies to Accelerate Your Retirement Investments
As you approach retirement age, it's crucial to maximize your savings to ensure a comfortable retirement. Here are three key strategies to consider: catch-up contributions, after-tax contributions, and the Mega Backdoor Roth IRA.
Catch-Up Contributions
For those aged 50 and older, catch-up contributions offer an opportunity to increase retirement savings. In 2025, individuals 50 and older can contribute an extra $7,500 to their 401(k), raising the limit from $23,500 to $31,000. For IRAs (traditional or Roth), the limit is $8,000, which is $1,000 more than for those under 50. Catch-up contributions are a valuable way to accelerate savings and compensate for lost time. Consider allocating some catch-up contributions to a Roth 401(k) if available, as withdrawals are tax-free after age 59½ and meeting holding requirements.
After-Tax Contributions
Beyond pre-tax and Roth contributions, many 401(k) plans allow after-tax contributions. After-tax contributions are made with post-tax dollars and can fill the space between standard contribution limits and the overall limit. The availability of this option depends on your specific employer’s plan rules and whether it permits in-plan Roth conversions or in-service distributions.
Mega Backdoor Roth IRA
The Mega Backdoor Roth IRA is a strategy that allows you to convert large after-tax contributions to a Roth 401(k) or Roth IRA, potentially allowing tens of thousands more to grow tax-free. This strategy is powerful but only available if your 401(k) plan supports after-tax contributions and either in-plan Roth conversions or in-service rollovers to a Roth IRA. Only about 10-15% of plans offer this feature, often seen in solo 401(k)s or specific employer plans.
In addition to these strategies, it's essential to take full advantage of any employer match, evaluate spending to free up savings capacity, and diversify investments with an appropriate risk profile given your retirement timeline.
By maximizing catch-up contributions in 401(k)s and IRAs, making after-tax contributions if your plan allows, and using the Mega Backdoor Roth strategy to convert after-tax 401(k) contributions to Roth accounts for tax-free growth in retirement, you can significantly boost your retirement savings. Those aged 60-63 can contribute a super catch-up of $11,250, allowing up to $34,750 in total contributions.
Other advice includes considering municipal bonds and municipal bond funds for taxable accounts, as their interest payments are often exempt from federal taxes. Interest from bonds and bond funds is better suited for tax-deferred accounts, as it is taxed at the ordinary income tax rate. Funds invested in a taxable account are unencumbered by early-withdrawal penalties. Contributions to a Health Savings Account (HSA) are pretax, funds grow tax-free, and withdrawals are tax-free as long as used for eligible health care expenses. A taxable account could provide an important component of an estate plan due to the step-up in basis on the day of death.
- Incorporating after-tax contributions into a retirement plan that allows them can bridge the gap between standard contribution limits and the overall limit, offering a potential avenue for further financial investing in personal-finance strategies.
- By exploring the Mega Backdoor Roth IRA strategy, individuals can convert large after-tax contributions from their 401(k)s into Roth accounts, thus enabling more funds to grow tax-free as a part of their personal-finance and retirement-planning endeavors.
