Over Age 50? How to Catch Up on Retirement Savings
Dear Senior Living Adviser, I turn 50 in December. I know reaching that age allows me to make "catch-up" contributions to my individual retirement accounts. What about my 401(k) plan? Since I have a December birthday, can I make additional contributions in 2014 or do I have to wait until 2015? -- Steve Saver
I asked David Littell, professor of taxation and director of the New York Life Center for Retirement Income at The American College, to help me reply to your question.
The contribution limits to IRAs, 401(k) plans and other tax-advantaged retirement savings plans are higher for those who are age 50 and older. You are eligible for the higher contribution limits in the calendar year in which you reach age 50. So if you turn 50 in December 2014, you can make contributions that exceed the regular contribution limit under the "catch-up" rules for 2014 and all future years.
Let's go over the specific rules for IRAs and 401(k)s.
The regular contribution to an IRA is $5,500 for 2014, and the additional catch-up amount is $1,000. Remember that the IRA limits apply in aggregate to all contributions to IRAs and Roth IRAs, which means that catch-up contributions can be made to Roth IRAs as well. To qualify for any IRA contributions, remember that you must meet the other requirements regarding income and earnings from employment.
In a 401(k) plan, the maximum contribution is $17,500 for 2014 and the additional catch-up amount for those age 50 and over is $5,500. (These limits change in 2015 and can change annually.) 401(k)s are not required to allow catch-up contributions, although most plans do. Technically, to make catch-up contributions, a participant must first make the maximum contribution allowed under the plan.
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