Retirement Planning

Leveraging 401(k) Catch Up Contributions

Did you know that you may be able to contribute additional money to your 401(k) or IRA to help with retirement?

Bolster Your Retirement Savings With 401k Catch Up Contributions

In 2001 a major tax reform was signed that allowed Americans age 50 and older to contribute additional funds into their retirement plans.1 These 401k catch-up contributions were created by Congress to give baby boomers who might not have saved enough the option to increase contributions at a time when retirement is drawing closer. However, you can still make these extra 401(k) contributions even if you're ahead in your retirement savings, as long as you meet the age requirement.

Catch up contribution basics

Catch-up contributions refer to the additional contribution that people age 50 or older are eligible to make each year on top of their annual contribution limit for 401(k) plans. The amount of the catch-up contribution can vary with inflation from year to year.

Just recently, the IRS made a cost-of-living adjustment that increased the catch-up contribution limit for employees age 50 or older for 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan from $5,500 to $6,000 in 2015. 2 The additional catch-up contribution limit for IRAs however, has remained the same at $1,000.

Eligibility

Making extra contributions can really help give your retirement savings a boost. However, contributing to them comes with certain conditions - the first being that your plan has to permit them. Fortunately, according to the Plan Sponsor Council of America, 98 percent of all 401(k) plans allow catch-up contributions.

You can begin making catch-up contributions to your IRA and 401(k) in the calendar year in which you turn age 50, in excess of the annual contribution limit of your plan.3 Catch-up contributions are possible in 401(k), 403(b), 457 plans, and IRAs; however, the rules will differ among plans.4

Tax benefits

Catch-up contributions for traditional 401(k) plans are treated the same way as other employee contributions to the plan in that the money is not included in your taxable income for the year. 

1. http://about401k.com/contributions/limits/catch-up/
2. http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations-1
3. http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations-1
4. http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations-1

Was this article helpful?
1
3

All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries.

401k Catch Up Contributions

If you are looking for ways to boost your retirement savings, 401k catch up contribution may be an option. This article details the benefits of 401k catch up contributions which is the result of a major tax reform signed in 2001 allowing Americans age 50 and older to contribute additional funds into their retirement plans. For more information, visit our learning center.

WEB.1317.03.15