As an Empty Nester, chances are you’re turning your attention to your upcoming retirement and your nest egg. If you’re left feeling like your nest egg could be bigger, make sure you familiarize yourself with IRA catch-up contributions. They are a valuable tool in increasing your retirement savings as you approach the golden age.
What are catch-up contributions?
If you are 50 or older, or you will reach age 50 by the end of the year, you are able to make contributions to your IRA or employer-sponsored retirement plan above the normal contribution limit.
Catch-up contributions are designed to help you make up any retirement savings shortfall. Because they kick in at age 50, catch-up contributions can, for example, give parents whose children are getting older a chance to start shifting money from college savings to retirement accounts.
Catch-up contributions can be made to traditional and Roth IRAs, as well as to 401(k) plans and certain other employer-sponsored retirement plans. (NOTE: if you participate in an employer-sponsored retirement plan, check your plan’s rules – not all plans allow catch-up contributions.)
For people who are under 50 years old the limit on contributions to a IRA is $5,500. This amount is the total that can be contributed per year across all IRAs you may have with multiple providers. In other words, if you contribute $2,500 to a IRA with one provider you could theoretically contribute an additional $3,000 with another provider.
For individuals who are 50 or older, the same $5,500 contribution limit across all IRAs is in place. However, the IRS also allows these people to also contribute an additional $1,000 as “catch up” contributions.
Every year the IRS publishes maximum IRA contribution limits and catch-up provisions. The numbers for 2016 and 2017 are the same and are listed in the table below.
2016 and 2017 traditional & Roth IRA contribution limits
|Plan Name||Standard Limit||Catch-up limit (50+)|
*May also be limited based on tax filing status and income. Modified AGI (Adjusted Gross Income) limits for 2016: Single: $117,000 – $132,000; Married Filing Jointly: $184,000 – $194,000
Modified AGI limits for 2017: Single: $118,000 – $133,000; Married Filing Jointly: $186,000 – $196,000
It’s important to note that there are deadlines for contributions. The 2016 traditional and Roth IRA contribution deadline is 4/17/2017. The 2017 traditional and Roth IRA contribution deadline is 4/17/2018.
Also, keep in mind that the $5,500/$6,500 max total limits represent your total contributions, if you make deposits to both a Traditional and a Roth IRA.
Is it worth it?
While an additional $1,000 doesn’t seem like a lot, it’s important to remember that over the course of five years an additional $5,000 will be accumulated along with any interest or earnings. There are many calculators online that help you calculate the exact numbers for your unique situation. MidWestOne has a retirement calculator you can use, and this one from Kiplinger is built specifically to help you determine how additional contributions to your retirement account plan can add up over time.