You are fortunate if you have planned for your retirement from the time you started earning your own money. There are some people who, for one reason or another, have put off their retirement planning until recently. The US Government had these people in mind when they introduced the benefit of catch-up contributions to their retirement plans.
Eligible for this benefit are plan participants who are aged 50 years old and above. Financial experts urge people to take advantage of this benefit, since it will increase your savings and, at the same time, decrease your tax deductions by a bigger amount.
The 401k catch-up maximum limit for 2011 is set at $5,500, the same limit as that of the previous year. This is the contribution you can give on top of the regular pre-tax elective deferral limit of $16,500. This is true for both traditional and safe harbor 401k plans.
Other retirement plans funded by pre-tax contributions, namely 403b, 457b and SIMPLE IRA, also offer catch-up benefits to those nearing retirement age.
A 403b retirement plan is exclusively for those employees working in a public school or university or a segment of an agency that is treated as an educational institution. An example of the latter is someone who is working for an educational program for convicts in a state prison.
A 457b plan, on the other hand, has two categories. One is reserved for government workers, such as state and local employees, police officers, firefighters and selected teachers. The other category is only for the highly compensated employees of non-profit corporations. Included here are hospitals, unions and charitable institutions.
If you have any of these plans, your regular pre-tax elective deferral limit is equal to 401k’s $16,500. Catch-up contribution limit is also the same as 401k catch-up maximum of $5,500.
SIMPLE IRA, acronym for Savings Incentive Match Plan for Employees Individual Retirement Account, is offered by employers who have 100 employees or less getting a compensation of at least $5,000 in the previous year. If you have a SIMPLE IRA, your regular contribution ceiling is only $11,500. Your catch-up limit is set at $2,500, $3,000 lower than the 401k catch-up maximum. Your SIMPLE IRA, unfortunately, could not be combined with any other retirement plan.
It isn’t too late to boost your savings for retirement. These are just some of the provisions made by the state to help you have beneficial plans. One last reminder – your employer’s contributions are not included in your total contribution limit. So, make sure you give the maximum contribution you can afford and take advantage of your retirement plan.