Planning in Your 50s: Catch-Up Contributions - Adviser Investments

Planning in Your 50s: Catch-Up Contributions

November 13, 2020

Turning 50 is momentous for so many reasons—including the extra boost you can provide to your retirement savings.

The Internal Revenue Service (IRS) allows investors to contribute to tax-advantaged retirement accounts up to a specified limit per calendar year. In 2020, that limit is $6,000 to individual retirement accounts (IRAs) and $19,500 to 401(k)s and other workplace retirement plans such as 403(b)s and Thrift Savings Plans. At Adviser Investments, we encourage all clients to make consistent contributions to these accounts every year.

But the truth is, many people don’t even come close to maxing out their retirement account contributions—especially in their younger years. And that can leave individuals lagging where they need to be as retirement approaches. That’s why your 50th birthday is such an important milestone: It’s the point where the IRS lets you start playing catch-up.

For most people, their 50s are their peak earning years. Making catch-up contributions to your retirement funds can help you compensate for any deficit in your savings while still giving your investments a decade-plus to compound.

If you have the cash flow to max out your retirement accounts in your 50s and also make catch-up contributions on top of that, we highly recommend that you do so. In 2020, the IRS allows anyone over 50 to contribute an additional $1,000 to an IRA and an additional $6,500 to a workplace retirement plan.

What if you are already maxing out your 401(k) and IRA limits each year? Should you go beyond that? The answer depends on your individual situation. One rule of thumb is to aim to put 10%–15% of your salary toward retirement at this stage in your life. Higher earners should note that there are phaseout and upper income limits over which you are unable to take full advantage of a traditional IRA’s tax deduction or that make you ineligible to contribute to a Roth IRA, but those limits do not prevent you from earmarking other taxable investments for your retirement. (We list those limits for tax-year 2020 on page 2 of our Key Financial & Tax Planning desk reference piece.)

That said, don’t worry too much about hitting an arbitrary threshold. We advise our clients to save as much as they are reasonably able.

If you have questions about how much you should be contributing to your retirement accounts and whether you are on track for retirement, please reach out to your wealth management team. We’re happy to help.


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