2019 Catch Up ContributionsSubmitted by Miller Financial Group, Inc on November 5th, 2019
2019 Catch Up Contributions
By: Daniel S. Miller, CFP®
When comparing the U.S. to other nations around the world, the IRS does a pretty good job of providing the country's elder statesmen with efficient methods to save for retirement. The most popular investment vehicles the IRS provides access to for the benefit of US taxpayers include 401(k) and 403(b) accounts, and a variety of IRAs. While all of these options provide a variety of benefits to the taxpayer, the primary potential benefit revolves around taxation. In some cases, taxpayers can make investment with pre-tax dollars, effectively deferring taxes until they take distributions. In other cases, taxpayers can make their contributions with after-tax dollars with no taxation on the earnings that originate from those investments. For taxpayers 50 years and over, there's also another benefit the IRS makes available. The IRS allows what they refer to as "catch-up" contributions. The following information will pertain to these contributions and how they are administered.
What are Catch-up Contributions?
By the time a taxpayer reaches age 50, there's often a little more urgency about putting aside money for retirement. If someone age 50 or older hasn't yet established any kind of retirement investment account, that urgency tends to increase 10-fold. Catch-up contributions allow the taxpayer to increase the amount of their annual contribution above and beyond the regular statutory contribution limits of investment as set forth by the IRS. If you quality for catch-up contributions, you need to understand that the limits for these contributions will differ from one type of retirement investment account to the next. It's important that you recognize which type of retirement account you own, and what the applicable investment limitations are on your account. This is important information that you'll need to in order to keep yourself from violating any rules that might potentially disqualify your retirement account, or cause you to incur any penalties.
Types of Retirement Investment Accounts
While there are as many as a dozen different retirement saving options, the following information is going to focus on the most basic and familiar options and the applicable catch-up contribution limitations for 2019 as prescribed by the IRS. Remember, this provision is only available to taxpayers who are 50 years of age or older. Note: You qualify to begin making daily/weekly/monthly at any time during the year you turn 50 years old.*
IRAs (Traditional, Roth, etc.) - The standard contribution limit for 2019 is $6,000. The catch-up contribution limit is set at $1,000.
401(k) and Other Workplace Retirement Plans (401(k)s, 403(b)s, most 457s and the government’s Thrift Savings Plan (TSP)) - The standard contribution limit for 2019 is set at $19,000. The catch-up contribution limit is set at $6,000. That's whopping $25,000 you may be able to contribute to your account in 2019.
SIMPLE 401(k) - The standard contribution limit for 2019 is $13,000. The catch-up contribution limit is set at $3,000.
Why You May Want to Take Advantage of Catch-up Contributions
The primary reason many people take advantage of this rule is to do just what it says: To Catch-Up!” Unfortunately, it is common for many young workers to not save adequately during those early working years. Causing them to miss out on one of the greatest wealth building benefits of all; growth/compounding over time. During the years of young kids and so many demands on their resources, they may have felt like they needed every dime of their paycheck to meet their current needs. Planning and saving for retirement was not of immediate importance. But unfortunately that time passes by fast. The second benefit is the opportunity to put more money tucked away over time. Even if you have saved adequately before age 50, the IRS still let’s you participate in catch-up contributions. So if you have the bandwidth to make these catch-up contributions, it may allow you to accumulate even more resources for future use for you and your family. One’s own financial plan should drive this decision to participate in making catch-up contributions or not. Also, do not forget that if your retirement account is employer-sponsored with a matching feature, your employer may be matching all, or part of, the catch-up contributions. That's potentially even more money set aside for your retirement. If you are serious about setting aside as many resources as possible for retirement, it would be wise to consider taking advantage of any provisions that may work in your favor. Catch-Up Contributions are one of those features. Any reluctance to do so could be a lost opportunity.
*Material presented is not intended as tax advice. For specific tax advice, please contact your own qualified tax professional.
Daniel S. Miller, CFP® is President of Miller Financial Group, Inc. with offices located in Bellevue, NE and Red Oak, IA. Dan and his team serve clients throughout the country as they prepare for the next stages of their financial lives. Dan is a published author of the book “Retirement Built to Last: Planning for When the Paychecks Stop” and has had articles published in the Wall Street Journal, Financial Advisors IQ, Successful farming and The Hill. He is also a dedicated husband, father, and advocate for the financial planning process and financial education.
Dan Miller, David Eads, Kaleb Robuck, and Marcus Taylor are investment adviser representatives of and securities and advisory services are offered through, USA Financial Securities Corp. Member FINRA/SIPIC. A Registered Investment Advisor located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Services.