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Changes in the retirement landscape—rising life expectancy, declining Social Security replacement rates, and vanishing traditional pensions—increase the need for individuals to save. The tax code encourages individuals to save in 401(k) plans by allowing tax-advantaged contributions up to specified limits. In 2001, policymakers increased these limits for all ages and established a new catch-up provision for workers age 50 or older, which allows them to contribute much more. 

This brief, which summarizes a recent study, assesses the extent to which the catch-up provision has increased 401(k) contributions. The discussion is structured as follows. The first section introduces the catch-up provision. The second section defines the data and the sample used in the analysis. The third section examines the characteristics of the group most likely to take advantage of the provision: the small percentage of workers who previously contributed near the maximum level. The fourth section analyzes how contributions changed after the adoption of the catch-up provision. The final section concludes that only those near the maximum respond to increased tax incentives to save in 401(k)s, which is consistent with previous research.