The Impact of 401(k) Catch-Up Contributions on Retirement Income

Abstract

In 2002, Americans age 50 and older were given the opportunity to increase their contributions to qualified individual and employer sponsored retirement plans. The catch-up contribution provision in the Economic Growth and Tax Relief Reconciliation Act provides a tax deferred method to bolster retirement savings. This study measures the marginal returns generated by investing the 401(k) catch-up contributions over the 15-year period spanning 2002 - 2016. The results show that by taking advantage of the provision, individuals earned a total return of up to 115.10% on the incremental funds invested, compared to only 5.38% in a money market account.