Only 18% of American workers are very confident that they will have enough saved to live comfortably in retirement. If you are uncertain whether you will have enough money when it is time for retirement, there’s a simple solution: act now to catch up.
IRA catch-up contributions enable investors aged 50 and older to make up ground in saving for retirement, whether they had a late start or just want to sock away more money. In 2008, the regular contribution limit to an IRA is $5,000; an additional $1,000 can be contributed by those 50 and older.
Maxing Out and Then Some
Taking advantage of catch-up contributions can add up over time. The chart below shows that if a 50-year-old husband and wife both contributed $5,000 annually to their IRAs over 15 years, plus the $1,000 annual catch-up contribution, they would accumulate about $60,000 more than a couple who didn’t make annual catch-up contributions (this hypothetical example assumes an 8% average annual return).
Contributions to a traditional IRA may be tax deductible (subject to income limits for active participants in employer-sponsored retirement plans) and are not subject to current income taxes until withdrawn. Traditional IRA distributions are taxed as ordinary income and may be subject to a 10% federal income tax penalty if taken prior to reaching age 59½. Required minimum distributions must begin no later than April 1 of the year after the year in which the owner reaches age 70½.
Does it make sense for you to take advantage of catch-up contributions? Call today to learn more.