Catch-Up Contribution

What Is a Catch-Up Contribution?

A catch-up contribution is a type of retirement savings contribution that permits individuals aged 50 or more established to make extra contributions to 401(k) accounts and individual retirement accounts (IRAs). At the point when a catch-up contribution is made, the total contribution will be bigger than the standard contribution limit.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made the catch-up contribution provision, in this manner permitting more established workers to set to the side more earnings for retirement.

How Catch-Up Contributions Work

Initially, catch-up contributions under EGTRRA were scheduled to terminate toward the finish of 2010. Nonetheless, the Pension Protection Act of 2006 made catch-up contributions and other pension-related provisions permanent.

• For 2021 and 2022, the limit on annual contributions to an IRA is $6,000 per year, while the catch-up contribution limit for workers 50 and more than stays at $1,000.
• For workers 50 and over who partake in a 401(k), 403(b), most 457 plans, or the federal government's Thrift Savings Plan, the catch-up rate is $6,500 for 2021 and 2022.
• For 2021, annual contributions are limited to $19,500, and for 2022, the contribution limit is $20,500.
• For SIMPLE 401(k) plans, the catch-up contribution is $3,000 for 2021 and 2022.

$7.3 trillion

How much workers had saved in 401(k) plans as of June 30, 2021.

Catch-Up Contributions and General Mechanics of Retirement Plans

Workers can make catch-up contributions to an assortment of retirement plans, including the well known employee-sponsored 401(k). The people who don't have an employee-sponsored plan can add to a traditional IRA or Roth IRA. Different options incorporate the SIMPLE IRA and Simplified Employee Pension (SEP). It's essential to have one of these retirement plans and start contributing early, so there is compelling reason need to make catch-up contributions further down the road.

Around 60 million active 401(k) participants held $7.3 trillion in retirement assets as of June 30, 2021 as per the Investment Company Institute. By and large, 401(k) plans have been censured for their high fees and limited options. Nonetheless, changes in recent years have helped employees.

As well as offering catch-up contributions, the average plan offers roughly two dozen different investment options that balance risk and reward, as indicated by employee preference. Many fund expenses and management fees have stayed level or even declined, making the 401(k) option doable for additional workers. A more far and wide comprehension of 401(k)s, through education and disclosure drives, will keep on supporting participation.

While the 401(k) plan is funded with pre-tax dollars (bringing about a tax levy on withdrawals down the road), a Roth 401(k) is one more type of employer-sponsored retirement account that is funded with after-tax money. The Roth 401(k) enjoys several benefits, contingent upon your tax situation at retirement and different factors.

Highlights

• For 2021 and 2022, these workers can contribute an extra $1,000 to an IRA, on top of the standard $6,000 contribution limit.
• Catch-ups are permitted for workers aged 50 years and more seasoned.
• For 401(k) participants, the catch-up contribution limit is $6,500 for 2021 and 2022, on top of the annual $19,500 contribution limit for 2021 and the contribution limit of $20,500 for 2022.