If you want a financially secure pension, you have to save for it. But it is difficult to get an early start on retirement savings, especially with all the demands on your hard earned money for immediate needs. Balancing current and future financial necessities may seem almost impossible.
Unfortunately, it's too common for people to hit their 50th birthday before they get serious about building a retirement egg. Lawyers know this, which is why you will find provisions in many different tax-favored retirement accounts that allow you to save some extra money if you are 50 years or older. In fact, 2020 will see a significant increase in the maximum contribution limits that older Americans are allowed to make to 401[ads1] (k) s. against your financial goals for the coming year – and save yourself some taxes at the same time.
What is a collection contribution?
Attorneys created catch grants back in the early 2000s as part of tax reform. The move acknowledged the fact that the huge Baby Boom generation was approaching retirement age and that many people approaching the end of their careers had not yet saved enough to meet their financial needs.
As a result of a number of different pension plans, it is possible to collect contributions:
- For IRAs, those 50 or older can contribute an additional $ 1,000 per year.
- Participants in SIMPLE IRAs and SIMPLE 401 (k) plans receive a $ 3,000 catch grant annually if they are 50 years of age or older.
- 401 (k) participants who were 50 years of age or older in 2019 could contribute an additional $ 6,000 beyond the regular contribution limits.
You will even find some collection provisions in other contexts. For example, health savings accounts also make a $ 1,000 collection allowance, even if it's only available to those 55 or older instead of using 50 as the eligibility age.
What happens to the collection grant in 2020?  As part of the tax law provisions that created them, the collection contributions for 401 (k) and SINGLE plans are indexed to inflation. This means that as prices rise, so will the collection amounts
. Most of these figures do not change from year to year. That's because the law requires the numbers to remain the same until there's enough of an adjustment to kick the number up to the next $ 500 step. Then back in 2015, the 401 (k) catch climbed from $ 5,500 to $ 6,000.
After five years, the contributions to catch 401 (k) are once again higher. As of 2020, those 50 or older will be able to set aside an additional $ 6,500 dollars in their pension plans. The new basic contribution limit of $ 19,500 is added, which provides as much as $ 26,000 in total retirement savings in only 401 (k).
Too much to ask?
Of course, many people will not be able to come close to maximizing their 401 (k) contributions. Even with a low six-figure salary, it is not realistic for many people to save as much as a quarter of your total salary.
But before you dismiss the idea altogether, consider the fact that by the time you're in your 50s, many of the financial burdens you've had in the past have often eased. Children grow up and leave on their own, by paying down your mortgage loan can make monthly payments disappear, and you are often at the peak of your earning potential in your career.
Start saving more
When they created catch-up legislators, they definitely had in mind to encourage workers approaching retirement to come into gear with their savings plans. Take advantage of what they gave you to save more and you will be in a better position to get the pension you have been dreaming of.