DEFINITION of ‘Catch-Up Contribution’
A catch-up contribution is a type of retirement savings contribution that allows people over 50 to make additional contributions to their 401(k) and/or individual retirement accounts (IRAs). The catch-up contribution provision was created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), so that older individuals would be able to set aside enough savings for retirement.
BREAKING DOWN ‘Catch-Up Contribution’
Originally, the ability to make catch-up contributions under EGTRRA was set to end in 2011. However, the Pension Protection Act of 2006 made catch-up contributions and other pension-related provisions permanent.
Although using catch-up contributions is a great way for many people to expand their retirement savings, several studies show that few eligible candidates use catch-up contributions. For 2018 the IRS limit on annual contributions to an IRA remains at $5,500, while the catch-up contribution limit for individuals aged 50 and over is $1,000. For those employees aged 50 and over who participate…