Redpath Insights


Retirement on the Horizon? Tips for Retirement Catch-Up Saving After 50

by Christine Bentson, CPA, RPA, CEBS

February 6, 2019 โ€” Why should you know about catch-up retirement accounts? They can be a good strategy if you haven't saved quite as much as you want to have in retirement. This may be an excellent time to review these accounts as the annual contribution limits have recently been increased by the IRS.

Doing the math

If you made $60,000 a year, to put away 15% of your income would mean contributing $750 per month. But what if you want to have the same $5,000/month gross income per month in retirement?

You would probably need in excess of $1.5 million.

The earlier you start saving the better because of compounding interest. If you were currently age 50 and had started saving 15% of your income from age 40, and had saved $200,000 so far, and you kept investing at the same rate, it could grow to something like $950,000 by retirement age.

That seems like a pretty good amount, but it might only replace 65% of your income. Thatโ€™s why itโ€™s important that you are able to contribute more when you are nearer to retirement to make up for it.

You can try a retirement calculator where you plug in your own numbers by clicking here.

How does it work?

Here are some guidelines for the amounts you can contribute pretax to a retirement savings account once you turn 50:

  • Elective deferrals are not counted as part of a catch-up contribution until they exceed $19,000 in a year (for 2019);
  • SIMPLE IRAs or SIMPLE 401ks allow catchup contributions of $3,000 per yearโ€”however, salary reduction contributions to a SIMPLE IRA plan arenโ€™t treated as catch-ups until they exceed $13,000 (for 2019).
  • If youโ€™ve worked at least 15 years for a public school system, hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization), you may be eligible to make even more contributions;
  • Traditional or Roth IRA catch-up contributions can be made for $1,000โ€”to be submitted prior to the due date of your tax returns (not including extensions).

Who can utilize this, and what can they do?

Your ability to participate in catch-up contributions can be impacted by things like your savings to date, spousal employment and benefit situation, age, and how much you are contributing currently to your 401k or other employer-backed retirement plans.

Luckily, you donโ€™t have to go about figuring all of this out alone. There are many professionals who can assist you in navigating the choices available to you in your situation.

Christine Bentson, CPA, RPA, CEBS

Christine Bentson, CPA, RPA, CEBS

Christine Bentson, CPA, senior manager is the employee benefits service area leader, a retirement plan associate, and a certified employee benefit specialist. She specializes in establishing, designing and administering employee benefit and retirement planning services for closely-held business clients, as well as preparation of government reporting for welfare benefit plans. Christine has provided public accounting services at Redpath and Company since 1987.