The contributions to a 401(k) have limits. The contribution limit for 2021 is $19,500. If you’re 50 or older though, you get an additional $6,500 to contribute towards your 401(k) account. This is known as the catch-up contribution. This helps those who are close to withdrawing money from their 401(k) to contribute more.
Since the withdrawal age for 401(k) is 55, those who are over 50 can take advantage of this extra amount and get more in the end. The catch-up contribution is what will allow them to get more in return for their investment.
The catch-up contributions also increase over time just like the contribution limits. The Internal Revenue Service adjusts how much an employee can contribute to his or her 401(k) account every year. The increases in the main contribution is generally made every year but the catch-up contribution doesn’t see an increase that often.
On average, the IRS increases the 401(k) contribution in about three to four years. As an employee who is 50 or older, you will get to contribute as much as $26,000 to your 401(k) retirement plan. The catch-up contribution is available as soon as you reach 50 years of age.
For example, if you reach the age of 50 on November 20, 2021, you can contribute with the catch-up bonus on the November 21st. So you aren’t necessarily need to wait for the next year you fully turn 50 as far as the year is concerned.
Should I contribute more after age 50?
This surely depends on your goals with the 401(k). If you plan on maxing out, the extra $6,500 for 2021 is definitely going to be a helping hand. To get a better understanding of whether or not you should contribute with the catch-up contribution, plan ahead, and see if maximizing 401(k) is a good option for you.
If you have other things to be taken care of before maximizing 401(k) such as a mortgage or other debt(s) it is suggested that you put 401(k) on hold and pay off your debt. That’s assuming the debt take a large portion of your earnings.
If not though, you can find the balance between the amount to forward 401(k) and your other expenses.