Key Points
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Adults 50 and older are allowed to save much more than their younger counterparts in their retirement accounts.
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The Rule of 55 helps you skirt the 10% early withdrawal penalty on your 401(k) from your most recent employer.
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Retirement account rules can change annually, so always double-check before taking money out of your account.
By the time you turn 50, you probably have a decent understanding of how to use your retirement accounts. You make money at your job, then you transfer a portion of this to a 401(k), IRA, or other account where it’s invested until you’re ready to retire.
It can become so routine that you don’t even think about your retirement account for months or even years, unless something about your plan changes. But there are a couple of unannounced changes that take effect in the year you turn 50, and they could be exactly what you need to enjoy your dream retirement.
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1. Catch-up contributions
If you weren’t able to save as much as you wanted for retirement when you were younger, catch-up contributions can help you fix that. They’re additional amounts you can contribute to your retirement accounts on top of the standard contribution limit for the year.
For example, IRAs allow adults under 50 to contribute up to $7,000 in 2025. But those 50 and older can contribute up to $8,000. The extra $1,000 is a catch-up contribution. This applies to Roth IRAs as well.
401(k)s are a bit more complicated. Adults under 50 may save up to $23,500 this year. Those aged 50 to 59 and 64 or older may save up to $31,000, while those aged 60 to 63 by the end of the year may save up to $34,750.
The government reviews the standard contribution and catch-up contribution limits annually and sometimes increases them. It’s always worth checking this at the start of a new year, especially if you hope to max out your retirement accounts.
Of course, higher contribution limits may not be a useful perk to you if you can’t afford to save much for retirement each year. In that case, you may need to look into other retirement savings strategies to build your nest egg.
2. Rule of 55
The Rule of 55 is a useful 401(k) option that allows you to take withdrawals from your most recent employer’s account without paying the 10% early withdrawal penalty for distributions made while you’re under 59 1/2. However, this doesn’t get you out of paying income taxes on your withdrawals.
The rule itself is pretty simple: If you quit or otherwise leave your job in the year you will turn 55 — even if you’re only 54 at the time of the separation — you can make withdrawals from that employer’s 401(k) only without the early withdrawal penalty. If you’re a public safety worker, such as a police officer, firefighter, air traffic controller, or EMT, you can take advantage of this perk five years early in the year you turn 50.
This is a great option if you have a lot of savings and are looking for a way to tap them early without a tax penalty. But it might not be a good choice if you’re concerned about running out of money prematurely in retirement. In that case, you’re probably better off leaving your savings where they are and continuing to work until you feel more confident that you have enough money set aside.
Watch for future retirement account changes
Retirement account rules can change over time. For example, the additional 401(k) catch-up contribution for adults aged 60 to 63 only took effect in 2025. So there’s a chance that the rules could change even further over the next several years.
It’s important to double-check your contribution limits and the rules around early retirement account withdrawals before you attempt to take advantage of either of the two rules above to ensure you don’t wind up with an unexpected tax bill.
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