Catch-Up Contributions

The Economic Growth and Tax Relief Reconciliation Act of 2001 added catch-up provisions for retirement savings. These catch-up contributions are additional contributions allowed in IRAs, 401(k), 403(b) and SIMPLE plans, for those age 50 or older. These contributions are allowed in addition to the higher limits the tax bill set for future contributions to these plans.

Here is a chart of the catch-up contributions by type of plan:

Who is Eligible for Catch-Up Contributions?

Catch-up contributions are available to individuals who are at least 50 years old before the end of the plan year. The provision was originally intended to help women nearing retirement age who have made fewer contributions to their retirement plans because of interruptions in their careers. However, the provision applies to men and women alike.

Is the Catch-Up Contribution Available to Someone Who Has Made the Maximum Contribution Every Prior Year?

Yes. Prior contributions do not affect eligibility for the catch-up contributions. Only the age of the participant affects eligibility.

Is the Catch-Up Contribution Available to Someone Whose Contribution Limits Are Decreased Because of Nondiscrimination Rules?

Yes. If a plan allows all participants to make the same catch-up contribution election, nondiscrimination rules do not affect the amount of catch-up contributions allowed.

Can an Employer Make Matching Contributions with Respect to Catch-Up Contributions?

Yes. Employers are permitted to match catch-up contributions, just as any other contributions.

Bottom Line

This provision benefits all those age 50 and older who contribute to retirement plans. It increases the amount of money those individuals can save on a tax-deferred basis. It also gives highly compensated individuals a rare additional opportunity to add to tax-deferred savings. For more information regarding this topic, please contact Henssler Financial at 770-429-9166 or at experts@henssler.com

Disclosures

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