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.

 

Desiree Kaul
Desiree Kaul
Desiree@mainstreetplanning.com

Desiree Kaul is a Chartered Financial Consultant (ChFC®) and an Accredited Financial Counselor (AFC®). Her extensive experience in financial counseling and education includes previous work as a Personal Financial Counselor on Patrick Air Force Base, educating service members on various financial topics including the roll out of the Blended Retirement System (BRS). A previous Master Financial Coach with the Virginia Cooperative Extension, where she provided one-on-one counseling to economically vulnerable individuals and provided classroom instruction on a variety of financial topics to help clients achieve financial stability. She has also worked with Junior Achievement (JA) of Greater Washington, Northern California, and the Space Coast teaching financial literacy concepts to students in grades K-12. Additionally, she has served as a Professional Tax Preparer for H&R Block, completing personal tax returns, and counseling on tax planning.

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