What Is a Catch-Up Contribution?

Catch-Up Contributions Help You Increase Your Retirement Savings

60 years old and retiring with no savings

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When you are young, retirement seems more like a concept than something you'll ever have to think about. As you get older, retirement can feel like a deadline. And with any deadline, you start to get those nagging feelings of pressure. Are you on track? Have you saved enough? Are your investments earning enough? Whether you've saved regularly throughout your career or got a late start thinking about retirement, you'd probably like the chance to stash a bit more cash in your tax-favored retirement plan each year.

Fortunately, if you are age 50 or older, you can.

The IRS offers retirement savers something known as a catch-up contribution. But even individuals who have saved diligently and don't necessarily need to catch up can take advantage of it. If you are at least 50 years old and have a traditional IRA, Roth IRA, 401(k), Roth 401(k), SIMPLE IRA, 403(b), or 457 plan, you may qualify to save a little bit extra each year.

Catch-Up Contribution Amounts

Most tax-favored retirement accounts have IRS limits on how much you can contribute each year. There are limits on catch-up contributions as well.

If you have a traditional IRA or Roth IRA, the amount that you can contribute if you are age 50 or older increases by $1,000. The maximum contribution limit for both in 2017 is $6,500.

If you have a 401(k) plan, a 403(b) plan, or a 457(b) plan, you can generally contribute as much as $18,000 to your plan. If you are age 50 or older and your employer allows catch-up contributions, your limit increases by $6,000. The same is true for a Roth 401(k) or Roth 403(b). The total elective contribution limit is $24,000. (You may qualify for an extra catch-up contribution in the three years before retirement if you have a 457[b] plan. Contact your plan administrator for more information on this.)

If you have a SIMPLE IRA, you can generally contribute as much as $12,500. If you are age 50 or older and your employer allows catch-up contributions, your limit increases by $3,000.

Catch-up contributions are not permitted in SEP IRAs. The SEP IRA limit is $54,000. If you have something called a SARSEP, which is a plan set up prior to 1997 in which a small business employer contributes to your SEP IRA, you may qualify to contribute an additional $6,000. The rules for these plans are complex, so contact your employer or tax accountant for more information. The IRS provides additional information on SARSEP that can be accessed using this link.

Contribution limits increase over time, typically every year or every other year. They usually adjust to inflation in $500 increments.

Employers are not required to offer catch-up contributions in their retirement plans, but many do.

These limits do not include employer-match amounts. If your employer does match a portion of your contributions, your contributions could be even higher. Check with your plan administrator for more information on what is offered in your plan and how it applies to you.

Of course, catch-up contributions only come into play if you max out the elective deferral amounts in your 401(k) or reach the contribution maximums in your IRAs. Aiming to do so is a good starting goal. Your future, retired self will thank you.

Calculating the Benefit of Making Catch-Up Contributions

If you are deciding if it makes sense to take advantage of catch-up contribution rules, you should start by running a basic retirement calculation. This retirement calculator guide provides a summary of easy-to-use tools and calculators to help you see if you are on track to meet your income goals during retirement. In addition, this helpful calculator from Financial Engines may also be used to estimate the additional retirement savings you could potentially see by increasing your contributions.