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Catch Up Contributions


Razors Edge

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Looking over my 401(k) stuff this morning, and I realized I am not too far from "50 or older".  It seems, at 50, you can start putting $24k into a 401k vs the normal $18k limit. Why do you think they cap the 401k so low for normal folks? It seems like, if they gave people in their prime earning years a higher limit, then that would be better than hoping they throw an extra $6k/year at retirement way later than optimal.

Anyway, it sure would be nice if 1) they bumped that limit way higher and 2) let younger folks play catch-up.

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How It Works

The option works as follows, assuming your plan permits these contributions and you are age 50 or older: You may make an additional $6,000 (for 2017) pretax contribution to your 401k plan, on top of your regular pretax contribution limit.

The nice thing about the catch-up limit is that it is not subject to any other federal or plan contribution limits. Catch-ups are made on top of your current limits. After you contribute the maximum regular contribution ($18,000 for 2017) allowed for the year, you may make an additional catch-up contribution.

If your plan has restrictions that prevent you from contributing the maximum regular contribution ($18,000 for 2017), you can still make catch-up contributions on top of your other limit. This even holds true if your contributions are capped because you are considered a highly compensated employee (HCE). Indeed, the IRS is willing to let employers classify excess 401k contributions as catch-up contributions. So, if you are an HCE who is 50 or older, and your plan allows catch-up contributions, you should be able to contribute over your HCE limit without worrying about a refund.

Availability

One important thing to remember is that you can only make an age-50 catch-up contribution if your plan permits them. Over 90% of all plans allow catch-up contributions, but if you are unsure if your plan does, check with your benefits department.

The catch-up option is a great way to save additional dollars as your approach retirement, but as with most things, if you don't take advantage of the option, it will do you no good.

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Tom

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They don't make it easy, Sweetie.

They would prefer you work to death. 

I get to up my contributions next year. :cheerleader:

I hope the world doesn't collapse, before I get to spend it. we have saved and saved and then saved some more. A bunch is saved post tax, because you can't touch the big egg until 59.

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2 minutes ago, Dirtyhip said:

They don't make it easy, Sweetie.

They would prefer you work to death. 

I get to up my contributions next year. :cheerleader:

I hope the world doesn't collapse, before I get to spend it. we have saved and saved and then saved some more. A bunch is saved post tax, because you can't touch the big egg until 59.

I may be setting myself up for a less prosperous retirement, but this idea is always at the back of my mind. There are many factors that could derail our access to the retirement riches we have built up in our 401(k's) and similar plans.

There are cadres of politicians lusting after those funds. Just saw an article about that in the UK this week.

So, when I took my bike trip in 2009, I funded it with my 401 (k). Fully knowing that it could make my later years tougher, but balancing that with the idea that in my 60's I might not be able to do such a trip, and the funds may not be there due to any one of a number of events.

I am building back my 401(k) now and adding a significant amount every month.

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Because if they didn't cap it, the average person in the general population would come to the 'complete' understanding that the SS system is a major scam and there would be a revolt by the commoners.  This way only a few (maybe like yourself) are enlightened are there aren't enough of you to revolt.  Now shut up and go back to what you were doing.

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6 minutes ago, Dirtyhip said:

and the restrictions on income brackets are too low. You have to have less than 98K AGI to participate, in some of these pre-tax programs, I think. Correct me if I am wrong.

For a 401k, I am fine.  There are no restrictions I am gonna hit since that $98k AGI limit isn't in effect for a 401k. I think it is well over $200k before you start hitting restrictions.

Anyway, we meet with our adviser soon, and it is the middle years I am most concerned about - ie 50-65 - since that is the where it seems average folks get screwed. Can't touch the retirement stuff, don't get the government freebies, and it is harder to shelter money from taxes. :(

Tom

 

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54 minutes ago, BuffJim said:

I may be setting myself up for a less prosperous retirement, but this idea is always at the back of my mind. There are many factors that could derail our access to the retirement riches we have built up in our 401(k's) and similar plans.

There are cadres of politicians lusting after those funds. Just saw an article about that in the UK this week.

So, when I took my bike trip in 2009, I funded it with my 401 (k). Fully knowing that it could make my later years tougher, but balancing that with the idea that in my 60's I might not be able to do such a trip, and the funds may not be there due to any one of a number of events.

I am building back my 401(k) now and adding a significant amount every month.

Yes, but those funds are still going to get taxed at time of distribution.  They will get their grimy mitts on some of it too.

For Roth, yes, that makes me a little nervous on the gains that could be taxed. But Roth is already taxed money.

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3 hours ago, Dirtyhip said:

Yes, but those funds are still going to get taxed at time of distribution.  They will get their grimy mitts on some of it too.

For Roth, yes, that makes me a little nervous on the gains that could be taxed. But Roth is already taxed money.

Yeah, the wager is that your post-retirement income will be taxed at a lower rate than your pre-retirement contributions.

I have some friends who have substantial amounts in 401(k) accounts, IIRC, you have to start taking disbursements at age 72. They may get taxed pretty heavily.

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On 10/19/2017 at 2:39 PM, 2Far said:

Yeah, the wager is that your post-retirement income will be taxed at a lower rate than your pre-retirement contributions.

I have some friends who have substantial amounts in 401(k) accounts, IIRC, you have to start taking disbursements at age 72. They may get taxed pretty heavily.

Still think that's a good wager?  Who knew "helping the Middle Class" meant fucking over the Middle Class? I gotta work out the Regressives code language. It is tougher than those WWII Native American code talkers to figure out. Generally, I always just assumed it was a lie with some plausibility mixed in, but now??? Who the hell knows????

Tom

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9 minutes ago, 2Far said:

Hard to say. Psychology of sticking it away every month with the company match and only being able to withdraw under certain conditions (some with tax penalties) I think is attractive to a lot of folks.

Not reading the paper anymore? The "attractiveness" of it just made it a "target". Sure, likely a "distract them with this, while we screw them over with all of these things", but still pretty craptastic.

Tom

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