Many retirement savers have been asking themselves a range of questions about how the age-50 and over schemes for catch-up contributions work. If you want to learn more about these topics, then this handy 401k catch up contribution guide could help you to understand the basics.
The rules surrounding the 401k catch up system are reasonably straightforward. However, like with almost any retirement plan or investment, there are a few nuances involved within these elements that can be difficult to manage and are therefore important to understand. The ultimate place to head for more information about your plan is your benefits department.
Understanding The 401k Catch Up System:
The first thing we need to cover in this 401k catch up contribution guide is how the system works. Congress supplied the latest catch-up contribution option to people with retirement plans following the concern that people approaching retirement up until this point had not been able to save enough for their retirement. This new solution has given savers over the age of 50 the chance to increase their contributions when the time to retirement starts to get a little closer. These catch up contributions are available for 457, 403(b) and 401k plans as well as IRAs.
In cases where your current plan permits such contributions and you are at least 50 years old, you will be allowed to make additional $6,000 contributions to your 401k plan before tax, on top of your general pre-tax contribution limit. The great thing about this catch-up solution limit is that it's not currently subjected to any other kind of federal or plan contribution limit. In other words, your catch-ups are made on top of current limits. This means that once you have made the maximum contribution you can also make a further contribution.
If there are restrictions within your current plan that stop you from adding the maximum amount to your 401k contribution amount for any given year, it's worth noting that you should still have the ability to make catch-up contributions on top of the other limit in place. This still remains to be true if your contributions are currently capped because you are seen to be a highly compensated individual. At this time the Internal Revenue Service or IRS is willing to allow employers to class excess contributions to 401k plans as catch-up contributions. In other words, if you are aged 50 or older and your plan permits catch-up solutions for your 401k contributions then you should be able to go over your limitations without having to worry about refund problems.
Availability:
Finally, in this 401k catch up contribution guide, it's worth making a note about the availability of this strategy. One important thing to recognize is that you can only make a contribution to a catch-up for your 401k if your current plan permits this. Around 90% of all plans available today do permit catch-up contributions but you can always find out more from your benefits department if you feel unsure for any reason. For many people, the catch-up option is a fantastic way to save more money as they approach retirement.