50 or Older? Don’t Forget about Catch-up Contributions
If you’re 50 years or older, make sure you take advantage of the catch-up options for contributions to IRAs, 401(k), and other tax-advantaged, defined-contribution retirement plans.
For IRAs ─ both traditional and Roth ─ you can contribute an extra $1,000 a year beyond the standard limit of $5,500. But for workplace qualified plans, the catch-up provisions are even more generous. For 401(k) plans, the catch-up allowance is $5,500 ─ raising the total limit for the older age group to $23,000 in 2014.
You can do even better if you take advantage of the catch-up provisions in both an IRA and a workplace plan. If you’re 50 and work until you’re 70 (at which time your Social Security benefits reach their Maximum), contributing the maximum in an IRA and a 401(k) at a steady 7% annual return could potentially add more than $265,000 to your nest egg.
Where do you find the money to contribute these extra amounts? That’s an entirely different subject, but you can start by reducing the luxuries in your lifestyle: dining out less frequently, buying a cheaper car, taking less-extravagant vacations, canceling some subscriptions, cutting back on the premium cable TV channels, or using a cheaper data plan for your cell phone. You could also consider refinancing your mortgage (rates are at historic lows), making your home more energy efficient, and ensuring you take advantage of every tax break you can find on your tax return.
A combination of smarter investing, working a bit longer, and raising your retirement plan contributions may go a long way to creating a brighter outlook. If you’re not sure how to put the right action plan together, please call to discuss.
Copyright © Integrated Concepts 2012. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.