What are catch-up contributions and how do they work?

Retirement savings accounts like IRAs and 401(k)s have contribution limits that control how much can be saved in each account per year. Catch-up contributions allow workers that are 50 or older to contribute more than these limits. Fiduciary advisor Mike Reeves of Strategic Wealth Designers joined us on the newscast to discuss how catch-up contributions work. See more financial news at https://Local12.com/ItsYourMoney.

“Catch-up contributions began in 2001 to allow older workers to set aside more for retirement,” Reeves says. “They were set to expire in 2010 but have become permanent thanks to the Pension Protection Act of 2006. With catch-up contributions, total contributions will be higher than the standard contribution limit. These catch-ups are for those who are age 50 or older.”

Retirement savings accounts that have catch-up contributions are 401(k)s, 403(b)s, IRAs, and SIMPLE IRAs and 401(k)s. Contribution limits and catch-up contributions vary by account type. The standard 401(k) contribution limit for 2021 is $19,500 and the catch-up limit is $6,500. To be eligible to make a catch-up contribution, you must be 50 or older and reach the IRS standard contribution limit for the year.

“While catch-up contributions can be helpful, they may not be something everyone needs,” Reeves says. “Those who may not have been able to save as much in their younger years should consider the advantage of a catch-up contribution. But for those who have been maxing out their contributions for years, they may not be as necessary. Talking to your financial planner can help determine the most efficient use of your money.”

Creating a financial plan can help maximize your retirement savings. To see additional stories surrounding business and economic news for the Cincinnati area, visit https://Local12.com/ItsYourMoney and if you have a question for Mike send an email to [email protected].