Greg's pay stub came Thursday, and he stood at the counter looking at the net pay line longer than usual. "That's the one," he said, and slid it across to me.
It was the first paycheck after we raised his 401(k) contribution. His take-home was $194 smaller than the one before. That was exactly what we expected, and it still felt like a lot when you're holding the paper.
What the catch-up actually is
Once you turn 50, the rules let you put more into a 401(k) each year than younger workers can. The regular yearly limit has an extra amount on top for people 50 and older, usually called a catch-up contribution. The idea is that people in their fifties often have more room in the budget and fewer years left to save.
Here is the part I didn't understand until I read the plan materials twice. The catch-up only matters once you've hit the regular limit. Greg drives a bakery delivery route and makes about $74,000 a year. He is nowhere close to the regular limit, let alone the extra on top. So in a strict sense, we haven't used the catch-up at all yet.
What the catch-up rules did do was start the conversation. Greg is 58. He wants to work until about 64. That's six more years of contributions, and the government is telling us people our age are allowed to save more than they used to. It felt like a nudge to stop putting it off.
One more thing I learned: the law now allows an even bigger catch-up for people in the years they turn 60 through 63. Greg hits 60 in 2027, so that window lines up with his last few working years. We may never fill it. But it's there.
How much we added
Greg had been putting in 8% of his pay for years. His employer adds a match of 4%. We raised his contribution to 16%.
On a gross paycheck of about $2,846 every two weeks, that's the difference between $228 and $455 going into the account each payday. The extra is $227 per check, or about $5,900 a year.
His take-home went down $194, not the full $227. That's because the contribution comes out before federal and state income tax. One surprise for us: our city income tax still applies to the money that goes into his 401(k). Ohio's local income taxes generally work that way, so don't expect the city to give you a break for saving.
We kept his contributions traditional, meaning pre-tax. Starting in 2026, higher earners have to make their catch-up contributions as Roth, after tax. At Greg's pay that rule doesn't apply to us, and honestly the pre-tax break is what makes the bump affordable this year.
Why we waited until now
We could have done this two years ago. We didn't, for one reason: kids.
In 2023 and most of 2024 we were still sending Josh money every month, buying textbooks, covering a car repair, feeding him all summer. Once he moved out full time and his co-op job started paying real wages, those bills slowed to a trickle. I wrote last month about where the kid money went. A big piece went to the extra mortgage payments, which end in March.
The other piece was my own paycheck. I left the school in June and started part-time bookkeeping in September. That brings in about $1,000 a month. When we lined it all up on the spreadsheet, the $194 per paycheck fit without touching savings or the mortgage plan.
I'll admit we may have waited a little too long. Every year we didn't save more is a year that money didn't grow. If I could talk to the Diane of five years ago, I'd tell her to bump it a couple of points even with the kids still home. But she was buying a lot of groceries, and I forgive her.
What comes next
When the mortgage is gone in March, $893 a month frees up. Some of that will probably go toward retirement too, whether that's Greg's 401(k) or his IRA. We'll decide in the spring.
As always, I'm telling you what we did, not what you should do. The right percentage depends on your income, your debts and how many years you have left. Greg's plan has a phone number for a retirement counselor, and he called it before making the change. That call took twenty minutes and cleared up three things I had wrong.
Greg's verdict on the smaller check: "I guess I'll skip the second doughnut." He works for a bakery distributor. He has never skipped the second doughnut.
