It looks like some older workers might get a boost in how much extra money they can put in their retirement accounts.
So-called catch-up contributions — amounts permitted above the usual contribution limits — would be expanded for workers in their 60s, under legislation pending in Congress. While the details differ between the Senate and House versions — including the overall tax treatment of catch-up amounts — the push is part of a broader bipartisan effort to address insufficient retirement savings in U.S. households.
Current law allows savers age 50 or older to make catch-up contributions to their retirement savings, which is intended to be useful to those who didn’t save much when they were younger.
On top of the standard annual contribution limits — $19,500 for 401(k) plans and $6,000 for individual retirement accounts in 2021 — those who qualify can put an extra $6,500 in their 401(k) or $1,000 in their IRA.
“To produce a dollar of savings at retirement, you need to put in more when you’re 50 than when you’re 25,” said Richard Shea, senior counsel for the law firm of Covington & Burling and an expert on employee benefits. “But, a lot of people don’t focus on retirement until later in life.”
Catch-up contributions date to 2002, following congressional passage of a tax-reduction bill in 2001 (the Economic Growth and Tax Relief Reconciliation Act). Alarmed over the lack of savings among baby boomers nearing retirement, lawmakers gave an extra boost to those nearing the end of their working years in the form of those extra amounts.
