Take Advantage of Catch-Up Contributions

February 3rd, 2007  |  Published in 401K, IRA

If you’re over 50 by the end of the calendar year, you’re eligible to make catch-up contributions to accounts like your 401k and IRAs. For 401ks in 2007, that means each year you can contribute up to $20,500, $5k more than under 50 folks. For IRAs in 2007, that means each year you can contribute up to $5,000, $1k more than under 50 folks. Now, you may be thinking that a few thousand dollars for ten years or so won’t make a difference but you’d be surprised at how significant those extra savings can be when it comes time to retire.

For example, if you contribute the maximum of $20,500 every year to your 401k starting at 50 and retire at 60, you’re talking about an extra $600k (assuming a conservative 8% appreciation); and add to the fact that the 401K contribution is pre-tax so it really only “costs” you around $15k. If you do the same with an IRA, you’re talking a cool $145k in fifteen years. If you’re willing to devote the resources required to catch up, it can certainly pay huge dividends down the road.

  

Comments are closed.