Catch-Up Contributions
 

Catch-Up Contributions
By: Adam Ledbetter, CFP®
The Henssler Financial Group Position Paper

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 sets on future contributions to these plans.

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

Year

IRA & Roth IRA Catch-up Amount

401(k), 403(b), 457 Plan Catch-up Amount

SIMPLE Plan Catch-up Amount

2007

$1,000

$5,000*

$2,500*

2008

$1,000

$5,000*

$2,500*

2009

$1,000

$5,000*

$2,500*

2010

$1,000

$5,000*

$2,500*

*Indexed for adjustment

The Henssler Financial Group Wealth Management

 

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 The Henssler Financial Group at 770-429-9166 or comments@henssler.com.

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products and this overview is not to be construed as an offer to purchase any insurance products.

 
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