Saving enough money for a comfortable retirement is probably one of your primary financial goals. But, with so many other demands on your money, it’s easy to get off track. If you are age 50 or older and want to make up for lost time, the tax law allows you to catch up on your savings by contributing extra amounts to an employer-sponsored retirement savings plan and/or an individual retirement account (IRA).
Save Through Your Employer Sponsored 401(k) Plan
401(k) plans and their cousins (403(b) tax-sheltered annuities, salary reduction SEPs, 457 governmental plans, and SIMPLEs) allow participating employees to defer a portion of their pay to the plan on a pretax basis. You aren’t taxed on your plan contributions, or on the earnings your contributions generate, until you receive distributions from the plan.
The tax law limits this benefit by capping the annual amount of salary that can be deferred. For 2016, the dollar limit is $18,000 ($12,500 for a SIMPLE). But, if your plan allows it, you can contribute even more once you reach age 50. The maximum catch-up contribution for 2016 is $6,000 ($3,000 for a SIMPLE).