Business, Legal & Accounting Glossary
Additional tax-deferred funds that are set aside for retirement and are placed into retirement accounts such as a 401(k). Catch-up contributions are used by people who are over 50 years old and have less time to take advantage of compounding. Also, these may have a maximum contribution limit, which depends on the type of retirement account used by the contributor and the year the contribution is made.
If you are 50 or older, you are eligible to make a catch-up payment to your employer-sponsored retirement savings plan and individual retirement account (IRA). The catch-up amounts, which are higher for employment plans than for IRAs, are adjusted periodically to keep pace with inflation. You are able to make catch-up contributions regardless of whether you previously donated the maximum amount allowed. Additionally, if you contribute to an employer plan and an IRA, you are eligible to use both catch-up methods. Earnings on catch-up contributions accrue tax-deferred, just like regular account earnings. Additionally, if your original contributions are tax-deductible, your catch-up payments are tax-deductible. Health savings accounts (HSAs), which you can open if you have a high-deductible health plan (HDHP), allow you to make catch-up payments if you are at least 55 years old. When you reach the age of 65, you are no longer eligible to contribute to an HSA.
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This glossary post was last updated: 5th April, 2022 | 0 Views.