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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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Catch-up retirement contribution

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email asktony@tonynovak.com.

Q: I am eligible for an additional “catch-up” contribution to my company’s 401(k) plan but the employer will not match the contribution. I am already meeting my target savings goal calculated using the online retirement income tool you recommend. Is this additional deposit still a smart move?

A: First, congratulations in knowing and meeting your retirement savings goal. Few people actually do this although everyone should. If you are looking for a way to save additional taxes and can afford to put an additional $3000 into your long-term savings account then yes, it makes sense. Vanguard Group recently published some data on the popularity of catch-up contributions within 401(k) plans, IRAs and other retirement plans. The surprising statistic was that approximately 97% of participants in qualified retirement plans are eligible to make tax-deductible catch-up contributions. This means that their enrollment base is much older than we would have guessed. The not so-surprising facts are that only 13% elected to do so and those who did tend to be those with the highest account balances and more active in online voting the proxies on the stocks they own. Translated, this simply means that wealthy people are more likely to be looking for additional ways to save taxes.

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