Confessions from a Compulsive Saver….Catch-up Contributions

Confessions from a Compulsive Saver….Catch-up Contributions

I am so excited for this December, not for Christmas, like you would expect but because my husband is turning 49. Come January, he will be eligible to start catch-up contributions into his qualified accounts. Catch-up contributions are in addition to the annual contribution limit. For example, most people are familiar with a 401k plan, and the limit is $20,500 in 2022. A catch-up contribution is money contributed after you have maxed out this amount. Catch-up contributions can be great for people that may have delayed saving, individuals that might not have been able to max out their plans until later in their working career, or people that just want to continue to boost that nest egg.

So how does this work? Let’s break down some of the rules.

  • To qualify for catch-up contributions, you must be at least 50 before the end of the year.
  • Catch-up contributions can be made in a traditional IRA, Roth IRA, SIMPLE IRA, SIMPLE 401k, SARSEP, 401k, 403b, or 457b retirement plan.
  • For some types of retirement accounts, the amount of the catch-up contribution will depend on a person’s income level, and high-income individuals may be unable to contribute.
  • For traditional or Roth IRA’s, the catch-up contribution is an extra $1,000. Please make sure to check your modified adjusted gross income (MAGI) and gov before making the contribution especially to the Roth IRA as there are strict guidelines.
  • SIMPLE IRA and SIMPLE 401k will allow you to contribute an additional $3,000 in catch-up.
  • SARSEP and 401k catch-up contributions can be up to $6,500.
  • 403b and 457b have some special considerations when it comes to catch-up contributions based on time in service or if you have made prior contributions, but the limits range from $3,000-$20,500. It’s best to confirm with your employer before contributing.

These rates are based on 2022, contribution limits and catch-up contributions do adjust with inflation. Be sure to always double check the current amounts, set your contribution up as an automatic deduction and review it annually to make sure you are still saving the amount you want to reach your goals. If you need to make any adjustments, then you can make them effective January 1st to make cashflow throughout the year easier to track.

We are currently reviewing our budget so we can take advantage of catch-up contributions to my husband’s 401k and his Roth IRA beginning in the New Year. That’s an additional $7,500 annually, and that makes this saver ecstatic.


MainStreet Team
MainStreet Team

MainStreet Financial Planning, Inc., an independent fee-only financial planning firm was founded in Maryland in 2002 by Jim Ludwick, CFP® who passionately believed that financial planning advice should be accessible to people from all walks of life without product sales and investment management services. In 2006 Anna Sergunina, CFP® joined the team and together they grew MainStreet Financial to a nationally recognized company, with a team of 6 staff members and 5 offices across the country.

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