Catch-up contributions allow people age 50 or older to make additional deferrals to their 401(k)s and IRAs after they reach annual contribution limits set by the IRS. Catch-up contribution amounts vary across different plan types. As you explore whether it makes sense to make catch-up contributions to your retirement accounts, you might also want to find a financial advisor who can provide you with hands-on guidance throughout the process.
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Catch-Up Contribution Amounts and Limits
The IRS sets catch-up contributions for eligible retirement plans each year. Of course, you must breach your plan’s contribution limit before you can make catch-up contributions.
Below, we break down the 2019 individual contribution limits and catch-up contribution amounts for different plans.
IRAs: The 2019 contribution limit for IRAs and Roth IRAs is $6,000. The catch-up contribution is $1,000.
401(k) and Other Workplace Retirement Plans: The annual contribution limit for workplace retirement plans like 401(k)s, 403(b)s, most 457s and the government’s Thrift Savings Plan (TSP) stands at $19,000. The catch-up contribution amount for these plans is $6,000. So you can essentially contribute up to $25,000 to these plans in 2019 if you turn 50 that year.
SIMPLE 401(k): The contribution limit for SIMPLE retirement plan accounts is $13,000 in 2019. Meanwhile, the catch-up contribution amount is $3,000.
Regardless of what plan you’re in, you don’t have to wait until your 50th birthday to make catch-up contributions. You can begin doing so the year you turn 50.
The Benefits of Catch-Up Contributions
As you can see, the catch-up contribution limit is quite generous across different plan types. You can use our 401(k) calculator to see how much you can expect to gain by taking advantage of catch-up contributions.
So let’s say you turned 50-years-old this year and you reached your individual 401(k) limit. But, you don’t use your catch-up contribution. Assuming an annual return of 7% on your 401(k) investments, a reasonable estimate according to some advisors, your account would grow to $20,330 by next year.
But by taking the full catch-up contribution, it would grow to $26,750. If you do nothing more under the same circumstances and let your money grow until you turn 65, you’re looking at a balance of about $69,000.
In addition, you stand to gain even more if your company offers some type of employer match on your contributions. As noted above, the most you can contribute to your 401(k) if you’re at least 50 years old or will turn 50 by the end of 2019 is $25,000.
Keep in mind, we’re talking about the money you put into the account. The IRS calls these “elective deferrals.” They are separate from any employer match your company may offer. In 2019, the total amount of tax-deferred contributions that can be made to your 401(k) plus all other defined-contribution (DC) plans from all sources including your employer is $56,000 or $62,000 if you’re age 50 or older.
DC plans typically cover workplace retirement plans. So if you’re 50 or older, the most you can contribute in 2019 to all your IRAs, including any Roth options, is $7,000.
And if you’re worried that the catch-up contribution will disappear, don’t fret. The Pension Protection Act of 2006 made catch-up contributions permanent.
How to Make Catch-Up Contributions
To begin making these extra contributions, you’ll need to contact your plan administrator or access your account online. You can make this election at any time and change the amount you wish to contribute each pay period if necessary.
Catch-up contributions must be made to 401(k) plans before the end of the year. IRA catch-up contributions, on the other hand, can be made up until the applicable deadline to file your income tax return. This date typically falls in the middle of April.
It’s best to take advantage of catch-up contributions and any other opportunities that can boost your retirement savings. It’s also important to avoid making mistakes that can jeopardize the money you’ve put away. This is why you should work with a financial advisor. This individual can help you make investment decisions that adhere to your financial situation. Your advisor can also help you navigate the often-complex framework of retirement plans to make sure you follow all the IRA rules and take advantage of any tax breaks you may be eligible for.
Tips on Boosting Your Retirement Savings
- If you need help organizing your retirement accounts, a financial advisor can help. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- Assess your budget and make sure you’re saving as much as you can to fund your Golden Years. This tip is especially important if there’s an employer match available. You can use our free budget calculator to see where you can cut back on in order to boost your retirement savings.
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