If you are age 50 or over by year end, you have the opportunity to make “catch-up” contributions to your retirement plans. Specifically, the catch-up amounts are as follows for year 2018:

1) Traditional or ROTH IRA        $1,000
2) 401(k), 403(b) and SARSEPs $6,000
3) SIMPLE Plans                                  $3,000

Your employer’s plan must allow catch-up contributions and the catch-up contributions are above the traditional annual deferral limits of:

1) Traditional or ROTH IRA        $5,500
2) 401(k), 403(b) and SARSEPs $18,500
3) SIMPLE Plans                                  $12,500

So how much is the extra contribution worth over the course of time? Let’s assume a person contributes the full catch up contribution at age 56 and continues for a full 10 years through age 65. At age 65 the extra contribution would tally up as follows (rounded to the nearest $1,000):

1) Traditional or ROTH IRA

a. Catch-Up $1,000
b. 4% return $12,000
c. 6% return $13,000
d. 8% return $15,000

2) 401(k), 403(b) and SARSEPs

a. Catch-Up $6,000
b. 4% return $72,000
c. 6% return $78,000
d. 8% return $90,000

3) SIMPLE Plans

a. Catch-Up $3,000
b. 4% return $36,000
c. 6% return $39,000
d. 8% return $45,000

Of course, the earlier a person chooses to utilize the catch-up provision the better. You should consider setting aside more for retirement as studies show that the typical person has not saved enough to retire into the lifestyle they would like. Also remember a married couple can double the benefit if each spouse uses the catch-up contribution annually.

If you have any questions, contact John Csargo.

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This material is being provided for informational purposes only with the understanding that neither HKFS nor ProEquities is rendering tax, legal or accounting advice. Please consult with your CPA or other appropriate advisors on all matters pertaining to legal, accounting or tax obligations and requirements.