BOSTON (CBS) – Congress increased the amount workers could contribute to their retirement plans but then realized that older workers closer to retirement were in rough shape. They define older as anyone over 50. So they passed another law allowing catch-up contributions for anyone over age 50.
Workers over 50 can contribute an extra $5,500 this year to their 401(k), 403(b), 457. If your employer’s plan allows the catch-up and if you have the extra cash you could max out your contributions at $23,000 this year. Both the 403(b) plan and the 457 plan have an additional catch-up provision as well.
According to a recent study, less than 6% of workers take advantage of the catch-up provision. Congress thought this was a good idea. Duhh……….. Where did they think workers were going to get the extra dollars?
Most families are stretched so thin that they cannot afford to max out their current retirement plans. And some employers chose not to include the catch-up provision in their retirement plans due to the administrative costs. This is especially true with companies that have a young workforce and high turnover rate.
If you are contributing to a SIMPLE IRA, are over 50, and can afford the catch-up you can add an additional $2,500 this year to your account.
The catch-up contributions for all other IRAs is a $1,000 this year.
The catch-up provision could be a great tool, but you need to have the extra cash available. If you are a two-income family and you are both over 50 and can tighten your belts and live more or less on one income start maximizing your retirement plans and use the catch-up provisions if you can.
Do that for 5 or 10 years and you will build up your retirement nest egg quickly. $46,000 contributed over 10 years; with an average return of 5%, you could have close to $600,000 in that nest egg. Having a comfortable nest egg allows you choices in retirement.