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What Is a Catch-Up Contribution?

Catch-Up Contributions Help You Increase Your Retirement Savings


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 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 2012 is $6,000.

If you have a 401(k) plan, a 403(b) plan or a 457(b) plan you can generally contribute as much as $17,000 to your plan in 2012. If you are age 50 or older and your employer allows catch-up contributions, your limit increases by $5,500. The same is true for a Roth 401(k) or Roth 403(b). The total elective contribution limit is $22,500 in 2012. (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 $11,500 in 2102. If you are age 50 or older and your employer allows catch-up contributions, your limit increases by $2,500.

Catch-up contributions are not permitted in SEP IRAs. 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 $5,500 in 2012. The rules for these plans are complex, so contact your employer or tax accountant for more information.

Contribution limits increase over time, typically every year or every other year. They 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.

DISCLAIMER: The information included here is not professional financial advice. It is intended for guidance only. Any private (non-governmental) websites linked to from this piece are included for informational purposes and cannot be verified. While we every effort is made to ensure that this information is correct, it may vary depending on your own personal circumstances.

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