The Special Catch-Up Contribution

 

The Economic Growth Tax Relief Reconciliation Act of 2001 (EGTRRA) introduced an attractive savings incentive for older individuals who may not have had the opportunity to save for retirement in previous years.  Known as the “special catch-up contribution,” the provision allows certain individuals to save above and beyond the regular contribution limit to employer-sponsored plans and Individual Retirement Accounts (IRAs).

 

For tax years starting after 2001, an individual who has reached age 50 by the end of the tax year (plan year for employer-sponsored plans) and who has already made the annual maximum allowable contribution to a retirement account may make an additional contribution to the account.

 

Please refer to the chart below for applicable catch-up amounts and the retirement accounts to which they apply.

 

Year	401(k)/403(b)/457/SAR-SEP	SIMPLE IRA	Traditional IRA/Roth IRA
2002	$1,000	$500	$500
2003	$2,000	$1,000	$500
2004	$3,000	$1,500	$500
2005	$4,000	$2,000	$500
2006 and after	$5,000	$2,500	$1,000

 

 

            Amounts will be adjusted for inflation in 2007 and after.

 

For employer-sponsored plans, the maximum catch-up contribution is the lesser of (1) a specific dollar amount (see table above) or (2) the participant’s compensation less any other elective deferrals for the year.  An employer is permitted, although not required, to make matching contributions with respect to catch-up contributions.