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Catching up: There’s no time like now
When you’re young, retirement seems so distant. But, as you get older, matters come into focus.
For many women, planning for retirement is significant because the reality is they tend to live longer than men. With women living 80.2 years (compared to 74.5 years for men), consider the possibility you are going to need your retirement income to last. For 65-year-old women, the expected lifespan average is 85.8 years, according to the U.S. Administration on Aging’s latest figures.
In addition, state of Michigan employee data shows women have saved 75% of what men have for their retirement.
The bottom line is you must save and plan more to enjoy a comfortable and financially sound retirement.
That’s where catch-up contributions are an impactful option. If you’re age 50 or older by the end of the calendar year, you may make additional contributions above normal annual Internal Revenue Service (IRS) limits to your retirement accounts to ensure you finish strong.
You can make catch-up contributions starting now, even if your 50th birthday isn’t until Dec. 31.
What are catch-up contributions?
Starting at age 50, under IRS rules, you are eligible to take advantage of catch-up contributions to your State of Michigan 401(k) and 457 Plans.
For 2021, you can stash up to $19,500 a year pre-tax into a 401(k) or 457. The catch-up provision means you can you put away up to another $6,500. The bottom line is it’s an opportunity for you to shield up to $26,000 from income taxes until after you retire.
For next year in 2022, you can put aside up to $20,500 a year pre-tax into a 401(k) or 457. And, with the $6,500 catch-up provision, you can protect up to $27,000 from income taxes until retirement.
There is an additional option for the 457 Plan. If you have not made the maximum contribution in prior years, you may be eligible for the Traditional 457 Catch-Up. This allows you to contribute up to twice the annual limit — up to $39,000 in 2021 and up to $41,000 in 2022 — to your 457 account in the three calendar years prior to the year you reach normal retirement age.
(The normal retirement age under the State of Michigan 457 Plan is as early as age 50, depending on your career field. See Appendix A of the 457 Plan for more details.)
What about Roth 401(k)?
Your State of Michigan 401(k) Plan offers an after-tax option: the Roth 401(k).
With a Roth 401(k), retirement contributions are taxed before they go into your account. You won’t pay taxes on the contributions or investment earnings when distributed as long you have held the account for at least five years and are older than age 59½.
If you choose, you can contribute some or all your $6,500 catch-up contributions into a Roth 401(k).
For more on catch-up contribution limits, visit Voya Financial’s website or the IRS website.
Consider increasing your retirement contributions
As a participant in State of Michigan 401(k) or 457 Plans, log into your Voya Financial account to set up a retirement scenario. If you are saving below the IRS’s 2021 limit of $19,500, consider an increase in your retirement contributions.
The concept of retirement is changing. The way you prepare for retirement must also change. Be engaged and do your homework. Your journey toward retirement is important. To make big plans, you must take small steps. Starting your financial planning is a step toward retiring.
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