Author Topic: Considerations for Catch Up Contributions  (Read 1406 times)

SummerLovin

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Considerations for Catch Up Contributions
« on: May 26, 2016, 04:03:50 PM »
Coworker will be eligible to make catch up contributions soon, and wants to know if he should add it to 401K, 401K Roth or other option? What are some of the considerations with each choice regarding early retirement?
He currently maxes 401k and Roth IRA, and expects to be in a lower tax bracket after retirement. He wants to make sure he has money he can access in early retirement.

money_bunny

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Re: Considerations for Catch Up Contributions
« Reply #1 on: May 27, 2016, 04:45:35 AM »
1. Be careful giving advice to co-workers. It's great when things go up, but when things go down it can get hostile quickly.
2. To answer that question you might need to know more about them then they would like. The default is 401K because 50+ people are usually in a higher tax bracket having reached their peak earning years. It's 23K that Uncle Sam can't touch and they are going to start using it in 15 years or so.

MDM

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Re: Considerations for Catch Up Contributions
« Reply #2 on: May 27, 2016, 07:51:36 AM »
Coworker will be eligible to make catch up contributions soon, and wants to know if he should add it to 401K, 401K Roth or other option? What are some of the considerations with each choice regarding early retirement?
He currently maxes 401k and Roth IRA, and expects to be in a lower tax bracket after retirement. He wants to make sure he has money he can access in early retirement.
Appears the traditional 401k would be best.  You might direct him to https://www.bogleheads.org/wiki/Traditional_versus_Roth and let him decide.

Also http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/.

SummerLovin

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Re: Considerations for Catch Up Contributions
« Reply #3 on: June 06, 2016, 12:01:59 PM »
Thanks for the feedback and links.  I shared the info with my co-worker, and will let him decide what is best for his situation. This was a good learning experience for myself, since I knew nothing about catch up contributions. My key takeaways:  Decisions about catch up contributions are likely the same rationale as normal contributions; You can't make them until you have exceeded normal contributions, which is why so few people can take advantage of the Catch-ups.