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Catch-up Contributions
Are you a late bloomer when it comes to investing for retirement?
You're not the only one who’s behind schedule. That's why there’s a “catch-up” provision for your 401(k) and other individual retirement accounts (IRAs).
What are the catch-up provisions?
According to the Boston College for Retirement Research, most employees do not contribute the maximum allowable amount to tax-deferred retirement accounts. First introduced with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), catch-up contributions can help you make up for earlier years when you might not have invested as much as you were allowed.
How much more can I invest for retirement?
Catch-ups give you the opportunity to increase your annual contribution limits in the year you reach age 50.
| 2012 Contributions | |||
|---|---|---|---|
| Plan type | Maximum | Catch-up | Total |
| 401(k)/403(b) | $17,000 | $5,500 | $22,500 |
| SIMPLE | $11,500 | $2,500 | $14,000 |
| IRA | $5,000 | $1,000 | $6,000 |
Keep in mind that SIMPLE and IRA maximums and the SIMPLE may be indexed for inflation, so these numbers may or may not be correct.
New laws mean perennial catch-ups
Originally, catch-up contributions were scheduled to expire after 2010, but the Pension Protection Act of 2006 made them permanent. The Act also mandates permanent annual increases to keep your contributions from being negatively impacted by inflation.
This doesn’t mean you should wait until after age 50 to start planning for your retirement. Investing now will give your money more time to for the opportunity to grow. But if you're already behind, you may find some comfort in knowing you could make up for lost time. Keep in mind, investing involves market risk, including possible loss of principal.
Next steps
Do you need to take advantage of catch-up provisions? How much more can you contribute? Work with your investment professional to find out. Don't have one? Find out what an investment professional can do for you and learn how to choose one.
Neither Nationwide® nor any of its representatives give legal or tax advice. You should contact your legal or tax advisor for such guidance.
1 Department of the Treasury, Internal Revenue Service, “Timing is everything,” Retirement News for Employers (Fall 2005).
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