Ever since passage of the Economic Growth Tax Relief and Recovery Act of 2001 (EGTRRA), individuals who are age 50 or over at the end of the calendar year can make annual catch-up contributions – as much as $6,000 in 2019.
The provision was designed to allow workers to “catch up” on contributions they might have missed out on during the earlier part of their career, either because they did not save as much as they could have, or because they left the workforce and had no opportunity to do so for a period of time.
According to the Plan Sponsor Council of America’s 61st Annual Survey, 29% of participants age 50 and older made these contributions in 2017, when the option was available.
Here 10 things you may not know about those catch-up contributions.
- Plans are not required to offer the catch-up contributions – and choosing to do so does require a plan amendment. According to the Plan Sponsor Council of America’s 61st Annual Survey, the vast majority (88.5%) of plans do.
- Participants can’t “catch up” until they hit a limit: a statutory limit ($19,000 in 2019), a plan-imposed limit (if any), or the ADP test limit.
- Contributions which would otherwise cause the plan to fail the ADP test may be retained in the plan as catch-up contributions, so long as they meet the requisite age and plan restrictions.
- Certain 403(b) plan participants can “catch up” even more; employees with at least 15 years of service may be eligible to make additional contributions to a 403(b) plan in addition to the regular catch-up for participants who are age 50 or over.
- Catch-up contributions must be made before the end of the plan year.
- Even participants who terminate employment during the year are eligible to make catch-up contributions.
- A participant who is eligible to make catch-up contributions is referred to in Treas. Reg. 1.414(v)-1(g)(3) as a “catch-up eligible participant.”
- Plan participants must make catch-up contributions to a retirement plan via elective deferrals.
- Catch-up contributions do not have to be matched (though they can be – and according to the Plan Sponsor Council of America’s 61st Annual Survey, about half do).
- A participant is considered to be age 50 any time during the calendar year in which he or she turns 50.
It’s said that it’s never too late to start saving – the catch-up contribution can help retirement savers make up for some of that “lost” time.