It’s not surprising that worker confidence in affording a comfortable retirement fell to a record low in 2011, considering stock market volatility and the sluggish economy. Workers aged 45 to 54 expressed even less confidence than the general population. 1 Could it be that they might feel there is less time to save more, or that they may need to recover from losses?
If you’re age 50 or older, you can make up for lost time not only by maximizing contributions to retirement plans but also by taking advantage of catch-up contribution limits.
In 2011 and 2012, the IRA contribution limit remains at $5,000 for regular contributions and $1,000 for catch-up contributions. Although an extra $1,000 might not seem like much, it could make a significant difference by the time you’re ready to retire (see chart). You have until the April tax filing deadline to make IRA contributions for the previous year. So there still may be time to make a 2011 contribution, and you have until the April 2013 filing deadline to make contributions for 2012.
The maximum contribution limit for many employer-sponsored retirement plans — including 401(k)s, 403(b)s, and 457s — increased to $17,000 in 2012, up from $16,500. However, the $5,500 catch-up limit remains the same. Be mindful that some employer-sponsored plans may have maximum limits that are lower than the federal contribution limit. If you are eligible and financially able to take advantage of the $22,500 annual limit, you could do so by deferring $1,875 from your paycheck each month.
Contributions to a traditional IRA are generally tax deductible (income limits apply to active participants in employer-sponsored retirement plans), and any earnings accumulate tax deferred. Distributions from traditional IRAs and most tax-deferred retirement plans are taxed as ordinary income and may be subject to a 10% federal income tax penalty if taken prior to reaching age 59½. Withdrawals from tax-deferred plans must begin no later than April 1 of the year after the year in which the account holder reaches age 70½ (with certain exceptions).
If you are concerned about your ability to fund a comfortable retirement, making maximum regular and catch-up contributions may help you get back on track to pursue your long-term goals.
We welcome your comments and are happy to talk with you about any questions or concerns you might have.
1) Employee Benefit Research Institute, 2011
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.