If you will be 50 or older by the end of 2016, you may be able to contribute more money every year to your employer-sponsored retirement plans and your individual retirement arrangements. Contributing more money will help you save more for your retirement and reduce your taxable income if you make pre-tax retirement plan contributions or deductible IRA contributions.
Employer-Sponsored Retirement Plans that permit you to contribute from your wages may allow an age-50 catch-up contribution. This means you may contribute additional amounts to the plan every year starting with the year in which you turn 50.
For 2016, you may be able to contribute the lesser of 100% of your compensation or:
- $24,000 ($18,000 plus an additional $6,000 of catch-up contributions) to 401(k), 403(b) and governmental 457(b) plans; or
- $15,500 ($12,500 plus an additional $3,000 of catch-up contributions) to SIMPLE plans.
If you contribute to the plan on a pre-tax basis, the contribution is not subject to federal income tax.
For Individual Retirement Arrangements if you will be 50 or older by the end of the year, you may also be able to contribute additional amounts every year to your IRA. For 2016, you can contribute the lesser of your taxable compensation or $6,500 ($5,500 plus an additional $1,000 of catch-up contributions). This limit applies to the combined contributions to all your traditional and Roth IRAs.
Here are a few things to remember about making IRA contributions:
- You can’t contribute to a traditional IRA starting with the year in which you are 70½ years old (you can contribute to a Roth IRA regardless of your age). Amounts you contribute to a traditional IRA after you are 70 ½ years old are excess contributions and incur a 6 percent tax per year as long as the excess amounts remain in the IRA.
- Your ability to deduct contributions to a traditional IRA may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain limits.
- Your ability to contribute to a Roth IRA may be limited based on your filing status and income.
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