Catch-Up Contributions for Retirement

Since establishing Illuminate Financial Group in Omaha, Nebraska, financial planner Kirby Spencer McDonald has completed credentials in wealth strategy and investing. As the managing partner of his company, Kirby McDonald guides his clients on retirement planning strategies, including contribution catch-up options.

Many tax-deferred retirement accounts place limits on the amount individuals can contribute every year. However, the IRS increases these limits for individuals aged 50 and over. This helps people build their retirement savings if they do not have the time to grow their accounts through compound interest.

Older individuals with employer-sponsored traditional or Roth IRAs can contribute $1,000 more per year than younger account holders. However, some filing statuses reduce the catch-up contribution.

For example, some married couples and people who make between $125,000 and $140,000 a year must use a formula to determine their contribution limit. While the IRS increases contribution limits yearly, catch-up contribution limits stay in place for five years.

Employers may approve catch-up contributions to other retirement accounts, such as the Savings Incentive Match Plan for Employees and 401(k)s. Pension plans for the public sector, such as the 403(b), often use a formula or guidelines to determine catch-up allowances.