A catch-up contribution additional retirement savings contribution to 401(k) accounts and individual retirement accounts (IRAs) only available for people aged 50 or older .. Catch-up contributions are larger than the standard contribution limit. The basic idea is to enhance the savings for the retirement years. As you know, there is a contribution limit imposed on retirement plans by a taxpayer. Therefore, catch up contribution is intended for taxpayers who have attained 50 years of age to save little more each year for their retirement kitty.
Who is eligible for catch up contribution?
Treas. Reg. 1.414(v)-1(g)(3) regards a participant who is eligible to make catch-up contributions as “catch-up eligible participant.” who must have
- Turned 50 years of age by the end of the calendar year in which the plan year ends.
- He/she is eligible to make elective deferrals under the plan (without regard to IRC Section 414(v)). In other words, he/she must have a traditional IRA, Roth IRA, 401(k) Roth 401(k), SIMPLE IRA, 403(b), or 457 plan.
Readers should note that even for in a non-calendar year plan, a participant is permitted to make catch-up contributions even if he will not turn age 50 until the next plan year, because a participant is deemed to be age 50 any time during the calendar year in which he turns 50.
What is the limit on catch up contribution?
You can make catch up contributions for a year up to the lesser of the following amounts:
- The catch-up contribution limit (see the table below) set by IRS , or
- The excess of your compensation over the elective deferral contributions that are not catch-up contributions.
Plan participants must make catch-up contributions to a retirement plan via elective deferrals. Catch-up contributions must be made before the end of the plan year.
The following table explains the limit of contribution to 401(k) and catch up contribution limit for the year 2019 and 2020
|401(K) Contribution Limit||$19,000||$19,500|
|Catch up contribution limit||$6,000||$6,500|
|Simple 401(K) Contribution||$12,500||$13,500|
|Simple 401(k) Catch up contribution||$ 3,000||$ 3,000|
|Traditional IRA contribution limit||$6,000||$6,000|
|Traditional IRS Catch up limit||$1000||$1,000|
Readers should note that employees with at least 15 years of service may be eligible to make additional contributions to a 403(b) plan in addition to the regular catch-up for participants who are age 50 or over.