In an ideal world, you’d start funding a retirement savings plan from an early age and keep making steady contributions throughout your career. Many people miss that initial boat, though, and don’t begin setting funds aside for retirement until they’re midway through their careers. Some even wait until late in their careers to sign up for a 401(k) or open an IRA.
The good news is that older workers who wind up behind on their savings are entitled to make catch-up contributions to their retirement plans once they turn 50. Currently, IRAs max out at $6,000 per year for workers under 50, while 401(k)s max out at $19,500.
Thanks to catch-up contributions, workers 50 and older can sock away up to $7,000 per year in an IRA and up to $26,000 in a 401(k). And now, there are proposals in the works that seek to raise these catch-up figures even more.
Throwing older workers a lifeline
It’s possible to save for retirement beyond the limits that apply to IRAs and 401(k)s. You can always open a regular brokerage account and earmark those investments for your senior years.
The problem, though, is that you won’t get a tax break for going that route. Traditional IRAs and 401(k)s offer the benefit of tax-free contributions and tax-deferred investment gains. Roth IRAs and 401(k)s, meanwhile, offer the benefit of tax-free gains and tax-free withdrawals during retirement. While saving outside of one of these accounts is certainly possible, it’s not as cost-effective.
There are two separate bills…