Catch up Contributions

Tell me more about Catch up Contributions with 401k plans. Who can make them and why is it important to know about these contributions?- Wallace M. Linn, Wichita, KS 67202

Catch up contributions allow employees to make up for a late start in saving for their retirement. If an employee is nearing his retirement age and has very little set aside to live on once he crosses this age, it is very important for him to maximize the savings he can put aside right away. Catch up contributions actually give him a second shot at making retired life financially secure. That is why it is important for your employees, especially those who are older, to know about these contributions.

The IRS regulations say that employees who have crossed the age of 50 can make catch up contributions to their 401k account. In effect, these employees can make their regular contributions and also add in an extra bit to make up for lost years. Different kinds of 401ks allow different catch up contributions which is why it makes things much easier for you, the employer, to sign up for a DIY 401 suite like These packages are constantly updated with the most recent IRS limitations and rules. You can always be sure of staying within the law when you administer the plan using this software. Remember that during times of inflation, the IRS usually allows bigger catch up contributions and vice versa so the rules are prone to fairly frequent changes.

If you do intend for your older employees to be able to save more for their retired life, make sure that you add the provision for catch up contributions to your plan right at the outset. Although the law does not make it mandatory for you to include this provision, adding it to your plan is a good way to keep your employees happy. Do remember that without this provision in your plan document, you cannot allow catch up contributions to the plan.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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