Catching Up

By Ian Berger, JD
IRA Analyst
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Who says getting old is all bad? Once you reach a certain age, Congress rewards your longevity by letting you contribute an extra amount to your IRA or workplace savings plan – with no strings attached. It’s a great way to boost your nest egg and get an immediate tax break if making pre-tax deferrals (or a tax break down the road if making Roth contributions).

Age 50 catch-up for IRAs. If you’re age 50 or older by the end of a year, you can contribute an additional $1,000 to a traditional or Roth IRA for that year. For 2019, this means you can make a total IRA contribution of up to $7,000 – as long as you are otherwise eligible for the IRA.

Age 50 catch-up for workplace plans. Most age 50 or older workplace plan participants can defer an additional amount beyond the regular annual limit ($19,000 for 2019) to the plan. The catch-up contribution limit, which is indexed periodically, is $6,000 for 2019. So, you can make total deferrals of up to $25,000 for 2019.

Despite their name, age 50 catch-up contributions are available even if you’ve contributed the maximum amount in all prior years. And, you can use the age 50 catch-up for workplace plans even if you also use the age 50 catch-up for IRAs.

Additional catch-up for 403(b) plan participants. A 403(b) plan may allow participants with at least 15 years of service to make up to an additional $3,000 of annual catch-up contributions. There is no age requirement for this catch-up, and it can be used on top of the age 50 catch-up. However, there is a lifetime limit of $15,000.

Catch-up for 457(b) plans. A 457(b) plan can be sponsored by either a governmental employer or a tax-exempt employer. If you’re age 50 or older, you can defer up to an additional $6,000 only if you’re in a governmental plan.

However, both types of 457(b) plan may allow you to defer an even higher catch-up amount in the last three years before your retirement. For those three years, your catch-up amount could be as high as the normal deferral limit. For example, you may be able to defer as much as $38,000 ($19,000 + $19,000 catch-up) in 2019 – a real windfall.

Two caveats: First, the three-year catch-up for 457(b) plans is a true “catch-up,” meaning that it’s limited to unused deferrals from prior years. If you have been deferring the maximum amount in all prior years of employment, this catch-up isn’t available. Second, you can’t use both the three-year catch up and the age 50 catch-up in the same year.

So, while enjoying your hot dogs and burgers at your Labor Day cookout this weekend, by all means don’t forget the “catch-up.” You’ll “relish” the additional savings opportunity.