Uncle Sam also salutes older Americans by offering special tax breaks to workers 50 and older who are trying to save for retirement. Yet, millions of people are unaware of this unique opportunity to save more.
Just 46% of self-employed workers and 60% of traditionally employed workers who are 50 or older know that the federal government allows people 50 and older to make “catch-up” contributions to their retirement savings accounts, according to a newly released study by the nonprofit Transamerica Center for Retirement Studies.
Are you among the ranks of such workers?
How catch-up contributions work
In 2019, most Americans can contribute a total of $19,000 to workplace retirement accounts like 401(k)s. But Americans 50 and older can contribute an additional $6,000 to certain workplace retirement accounts — an amount the government characterizes as a “catch-up” contribution.
Catch-up contributions are also available to folks saving in individual retirement accounts (IRAs). For example, in 2019, most workers can contribute $6,000 to an IRA. But savers 50 and older can contribute an additional $1,000.
The upshot: Super-savers who are 50 or older can combine contributions to these accounts to make huge progress in their retirement savings efforts.
For example, contributing the maximum to your 401(k) and the maximum to a Roth IRA — and contributing the full “catch-up” contribution in each case — allows you to stuff $32,000 into retirement savings this year. That compares with just $25,000 allowed for younger savers.
The news gets even better at age 55. At that point, folks with a health savings account (HSA) are eligible for a catch-up contribution of $1,000. That amount is in addition to the HSA contribution limits for 2019 of $3,500 for individuals, and $7,000 for families.
Super-duper older savers who take advantage of all three of these accounts — 401(k), Roth IRA and HSA — can contribute anywhere from $36,500 to $40,000 to their nest egg this year. And most of that money will not be taxable in the year of contribution.
Pretty neat trick.
You can learn more about catch-up contributions at the IRS website.
How to save more for retirement
Of course, most of us struggle to find two nickels to contribute to retirement savings, let alone $40,000. If saving is a challenge for you, don’t give up hope.
Money Talks News offers an online course — The Only Retirement Guide You’ll Ever Need — that is designed for people between the ages of 45 and 65.
Taught by Money Talks News CEO and founder Stacy Johnson, the course combines lessons, videos, worksheets and quizzes to help you reach your retirement savings goals.
You can also learn more about saving for retirement in Money Talks News stories such as:
- “5 Things Preventing You From Saving for Retirement — and What to Do About Them”
- “4 Secrets of People Who Save More Than 20% of Their Income”
- “5 Common and Costly Retirement Investing Mistakes”
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