In the reforms brought about by the Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), a new concept called the 401k catch up contributions was introduced. 401k Catch Up contributions allow retirement participants over the age of 50 to contribute extra payments each year ($5000 in the year 2006). This move was done so as to encourage people to plan and start saving money for their retirement, because its only your money that will help you during retirement!
Starting January 1st, 2002, catch up contributions were set at $1000. This amount was increased by $1000 every year (thus $5000 in 2006). After 2006, this amount can be increased by $500 per year.
401k Catch Up Contribution FAQS
1) Are Catch Up Contributions available in all US States?
Yes the catch up contributions are available in plans across the United States.
2) How many Employees actually use the 401k Catch Up Contributions?
Not many. Clare Bergquist, a 401k Expert working for Strong Retirement Plan Services in Milwaukee USA says only 1% of his huge corporate client base of 300 customers take advantage of this service. This is despite of the fact that 17% of these clients are over the age of 50 (and thus eligible to make 401k catch up contributions).
3) Why don’t 401k Retirement Participants take advantage of Catch Up Contributions?
According to Lisa Hoene, VP of Financial Educational & Planning at American Express Retirement Services in Minneapolis says most of her clients don’t have the “time, energy and resources” to take advantage of the 401k catch up contributions.
4) Is it mandatory for Employers to make available 401k Catch Up Contributions?
No it is NOT mandatory for 401k for retirement plans to offer catch up contributions.
5) Are 401k Catch Up Contributions to be reported on separate W-2 forms?
No, both the regular 401k contributions and catch up payments are to be reported on the same W-2 form.