As people approach retirement age, many wonder how else they can be growing their retirement account. Maybe they started contributing later in life and are now worried. Maybe they underestimated how much they need to save. In any case, there is a silver lining! Making catch-up contributions are a way to add more money to your retirement account.
What Are Catch-up Contributions?
Beginning the year you turn 50 (regardless of when your actual birthday is), you are eligible to contribute even more to your retirement account! This is great news if you need to add a little more “oomph” to your nest egg. That’s it. That’s the eligibility. You simply have to get older.
Let’s Talk Limits
For 2021, the contribution limit for your employer plan is $19,500. The catch-up contribution limit is $6,500 for this year. So, starting the year you turn 50, you could put away $26,000 into your employer plan retirement account.
IRAs have different limits. For 2021, the limit is $6,000. With catch-up contributions, you could throw in another $1,000. So, starting the year you turn 50, you could put away $7,000 into your IRA.
** Please note that the catch-up contribution limit for SIMPLE 401(k) plans (not to be confused with the 401(k) that more people have) is $3,000 for 2021. **
Contributing to Both Types of Accounts?
Yes, you can max out both your employer plan and your IRA. What this means is, with catch-up contributions, you could contribute $33,000 ($26,000 + $7,000) toward your retirement this year! If you receive a match at work on your contributions, that’s just icing on the cake. More money! (And free money at that!)
Final Thoughts
If you are approaching retirement age (or are approaching 50 years old) and want to know how to add more money to your retirement accounts, catch-up contributions will help you do that. Talk to your employer to find out what you need to do. Some employers will automatically process any extra contributions above the $19,500 as catch-up contributions. Some employers will want you to complete some kind of paperwork and actually elect catch-up contributions.
To learn more about catch-up contributions, please visit the IRS page here.
If you are having trouble controlling your money and want to get a handle on it, please reach out to us! Schedule your free consultation here. Take back control of your money and Sleep Well At Night!
2 thoughts on “Catch-up Contributions: What You Need To Know”
This is exactly what I had hoped you would write about. Thank you!
You’re very welcome! Glad you enjoyed the post!