Age 50 or Older?  Consider Extra Retirement Contributions

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Here’s an important reminder for those who want to max out before-tax contributions to employer-sponsored

2019 Contribution Limits
Traditional and Roth IRAs $6,000 (up from $5,500 in 2018)
401(k), SARSEP, 403(b) Plan Deferrals & 457 Plan deferrals $19,000
(up from $18,500 from 2018)
SIMPLE deferrals $13,000 (up from $12,500 in 2018)

salary retirement plans, which include 401(k), 403(b), 457 and SIMPLE plans, as well as traditional and Roth IRAs. If you are age 50 or older at the end of this year, you are generally eligible to make “catch-up” contributions for the current tax year.

You also have until the due date of last year’s tax return (April 15 or, if it falls on a weekend, the next business day) to make IRA catch-up contributions for that year. In other words, you can make contributions for the 2019 tax year right up to April 15, 2020 (when the 15th falls on a weekend, the deadline is the next business day).

Above and Beyond

These contributions are above and beyond the regular contribution limits listed in the right-hand box that apply to salary reduction plans and IRAs.

Why should you make catch-up contributions? Because studies show that many Americans have not been saving enough for retirement. This shortfall becomes more critical as retirement age approaches. Extra contributions are intended as a tax incentive to spur people to make up the difference while they can.

This Year’s Amounts

Here is a table of the catch-up contributions currently scheduled:

Tax Year 401(k), 403(b)
and 457 plans *
Traditional
and Roth IRAs**
SIMPLE deferrals
2019 (and 2018)  $6,000 $1,000    $3,000

 

* Note: Depending on your salary level and terms of your employer’s plan, your personal maximum contributions may be less.
** If you are married, and both you and your spouse are age 50 or older, you can each generally contribute the listed amounts to your separate IRAs.


How Much of a Difference Can Catch-Up Contributions Really Make?

Good question. To find the answer, let’s assume that you turned 50 in 2005 (when the limits for employer-sponsored salary reduction 401(k), 403(b), or 457 plans were $14,000 and $4,000 for catch-up contributions) and take full advantage of the maximum contributions allowed for 2005 and the following 15 years. The analysis below shows how much extra you could accumulate by age 65.

At 5% Return At 7% Return At 9% Return
$116,624  $137,454 $162,686

 

Note: These are before-tax numbers

The next analysis shows how much extra you could accumulate in your IRA by age 65, assuming you turned 50 in 2005 and make maximum catch-up contributions starting with the 2005 tax year (when the limits were $4,000 plus $500 catch-up) and continuing for the following 15 years.

At 5% Return At 7% Return At 9% Return
$21,729  $25,406 $29,825

 

Again, these are before-tax numbers

The final analysis shows how much extra you could accumulate by making salary deferral catch-up contributions plus IRA catch-up contributions, assuming you turned 50 in 2005 and make maximum catch-up contributions starting with the 2005 tax year and continuing for the subsequent 15 years.

At 5% Return At 7% Return At 9% Return
$138,353 $162,860 $192,511

 

Once again, these are before-tax numbers

Any way you look at it, that’s a lot of extra money. If you are married, your spouse can make catch-up contributions (if eligible) and double these amounts.

 

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