By Krista McBeath, McBeath Financial Group
A recent survey of baby boomers (ages 53 to 69) found that just 24 percent were confident they would have enough money to last throughout retirement. Forty-five percent had no retirement savings at all, and of those who did have savings, 42 percent had saved less than $100,000.
Your own savings may be on more solid ground, but regardless of your current balance, it’s smart to keep it growing. If you’re 50 or older, you could benefit by making catch-up contributions to tax-advantaged retirement accounts. You might be surprised by how much your nest egg could grow late in your working career.
Contribution limits
The federal contribution limit in 2016 and 2017 for all IRAs combined is $5,500, plus a $1,000 catch-up contribution for those 50 and older, for a total of $6,500. An extra $1,000 might not seem like much, but it could make a big difference by the time you’re ready to retire (see table). You have until the April 18, 2017, tax filing deadline to make IRA contributions for 2016. The sooner you contribute, the more time the funds will have to pursue potential growth.
The deferral limit in 2016 and 2017 for employer-sponsored retirement plans such as 401(k), 403(b), and most 457(b) plans is $18,000, plus a $6,000 catch-up contribution for workers 50 and older, for a total of $24,000. However, some employer-sponsored plans may have maximums that are lower than the federal contribution limit. Unlike the case with IRAs, contributions to employer-sponsored plans must be made by the end of the calendar year, so be sure to adjust your contributions early enough in the year to take full advantage of the catch-up opportunity.
The following table shows the amount that a 50-year-old might accrue by age 65 or 70, based on making maximum annual contributions (at current rates) to an IRA or a 401(k) plan:
Potential Savings a 50 Year Old Could Accumulate Without Catch-Up With Catch-Up
IRA By Age 65 $128,018 $151,294
IRA By Age 70 $202,321 $239,106
401(k) By Age 65 $418.697 $558,623
401 (k) By Age 70 $662,141 $882,854
Example assumes a 6 percent average annual return. This hypothetical example of mathematical compounding is used for illustrative purposes only and does not represent any specific investment. It assumes contributions are made at end of the calendar year. Rates of return vary over time, particularly for long-term investments. Fees and expenses are not considered and would reduce the performance shown if they were included. Actual results will vary.
There are special rules that apply to 403(b) and 457(b) plans that provide their own catch-up opportunity. Consult your financial advisor to find out the best options for your particular situation.
Krista McBeath is the founder and president of McBeath Financial Group in Normal. The firm covers all areas of financial management, specializing in retirement and financial planning solutions. For more information, you may call 309-808-2224, e-mail Krista@mcbeathfinancial.com, or visit their website at www.McBeathFinancialGroup.com.
Fee-based financial planning and investment advisory services are offered by McBEath Financail Group, a Registered Investment Advisor in the State of Illinois. Tax preparation and insurance products are offered through McBeath Tax and Financial Services, LLC. McBeath Financial Group and McBeath Tax and Financial Services, LLC.