Investor Education | Catch Up for a More Comfortable Retirement

A 2018 survey found that 43% of workers age 55 and older have less than $100,000 in savings and investments. And just 38% of workers have $250,000 or more. (Employee Benefit Research Institute, 2018)

If your retirement account balance is lagging, you can give your savings a boost by taking advantage of catchup contributions that are available to those age 50 or older. Even if your nest egg seems robust, additional savings could help provide a more comfortable retirement.

This opportunity is available for IRAs and employersponsored retirement plans. You might be surprised by how much your nest egg could grow late in your working career.

Contribution Limits

In 2018, the federal contribution limit for all IRAs combined is $5,500, plus a $1,000 catch-up contribution for those 50 and older — for a total of $6,500. An extra $1,000 might not seem like much, but it could make a big difference by the time you’re ready to retire (see chart). You have until the April 2019 tax-filing deadline to make IRA contributions for 2018. Of course, the sooner you contribute, the more time the funds will have to pursue potential growth.

The 2018 maximum contribution limit for most employer-sponsored retirement plans — including 401(k), 403(b), and 457 plans — is $18,500, plus a $6,000 catch-up contribution, for a total of $24,500. However, some employer-sponsored plans may have maximums that are lower than the federal contribution limit, so be sure you understand your plan’s rules. Unlike the case with IRAs, 2018 contributions to employer-sponsored plans must be made by the end of the calendar year, so now could be a good time to adjust your contributions to take advantage of the catch-up opportunity.

Contributions to a traditional IRA are generally tax deductible (with some limitations), and contributions to traditional employer plans are typically made on a pretax basis. Contributions and any earnings accumulate tax deferred, but distributions from traditional IRAs and tax-deferred employer plans are taxed as ordinary income. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty, with some exceptions. Generally, required minimum distributions from taxdeferred plans must begin once you reach age 70½.

This newsletter/advertisement is produced for our clients, friends and associates through an arrangement with WPI Communications, Inc. for the representatives’ use. Although the editorial content is professionally researched, written and edited, neither our firm nor any of its agents, representatives or associates make any representations regarding the accuracy of the content or its applicability to your situation. The information in this communication is not intended as tax or legal advice. In accordance with IRS Circular 230, the information provided herein may not be relied on for purposes of avoiding any federal tax penalties. Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of 1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or 2) promoting, marketing or recommending to another party any transaction or matter addressed herein. You are encouraged to seek tax or legal advice from an independent advisor.

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