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By Pam Leibfried
If you participate in a workplace 401(k), you are probably aware that the contribution limit specified by the IRS is $19,500 for both 2020 and 2021. But if you are over 50, you are also eligible to save an additional $6,500 in “catch-up contributions” to boost your retirement savings as you approach retirement age. You can also make an additional $1,000 catch-up contribution to an IRA.
According to IRS guidelines, if you are over 50, you are eligible to make catch-up contributions to your 401(k) or IRA, provided that you do not exceed the IRS’ IRA income phase-out limits. Please note that although the vast majority of employer-offered plans include the option of making catch-up contributions, they are not required to include catch-up contributions. If you are relying solely on a workplace 401(k) for your retirement savings, you should check your plan to confirm that catch-up contributions are offered. You have until December 31 to make catch-up contributions to your 401(k). If you have an IRA, you have until April 15, 2021 to make your IRA catch-up contributions.
If you turn 50 next year and do not exceed the IRS' IRA income phase-out limits, you are eligible to make catch-up contributions throughout the year, even if your 50th birthday is December 31, 2021. So if you are 49 for part of the year and are contributing the 2021 maximum of $19,500 to your 401(k) and want to contribute the maximum $6,500 catch-up amount for 2021, you don’t have to wait until your fiftieth birthday to start making your catch-up contributions. You can start to up your 401(k) contributions in January so that your contributions are spread evenly over all your 2021 paychecks. Paycheck reductions of $500 per month will hurt a lot less than having even larger chunks of your paycheck withheld later in the year.
This information is not intended to be a substitute for specific individualized tax or legal advice. You should discuss your specific situation with a qualified tax or legal advisor.
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