Seven out of 10 workers aged 50 and older are confident that they will have enough money to cover basic expenses in retirement. When it comes to the prospect of living comfortably in retirement, however, the percentage expressing confidence drops to 53 percent — and only 14% are “very confident.”
If your retirement account balance is lagging and you are 50 or older, you can give your savings a boost by taking advantage of catch-up contributions that are available for IRAs and employer-sponsored retirement plans.
In 2014, the IRA federal contribution limit is $5,500. Investors 50 and older can also make a $1,000 catch-up contribution 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 April15, 2015, tax-filing deadline to make IRA contributions for 2014. Of course, the sooner you contribute, the more time the funds will have to pursue potential growth.
The 2014 contribution limit for most employer-sponsored retirement plans — including 401(k), 403(b), and 457 plans — is $17,500. Investors aged 50 and older can also make a $5,500 catch-up contribution for a total of $23,000. 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, 2014 contributions to employer-sponsored plans must be made by the end of the year, so now would 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 (income limits apply to active participants in employer-sponsored retirement plans); your contributions and any earnings accumulate tax deferred. Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income.
Early withdrawals taken prior to age 59½ may be subject to a 10 percent federal income tax penalty. Generally, required minimum distributions from tax-deferred plans must begin once you reach age 70½.
(Charles Sims Jr., CFP, is President/ CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www.SimsFinancialGroup.com.)