Learn how you can take advantage of 401(k) catch-up rules.
If you've already celebrated your 50th birthday or if you also turn 50 by the end of the year, here's some great news: The government's Catch-Up Contributions law allows you to put even more tax-advantaged money into retirement plans, from 401(k)s to Roth IRAs. The law states that anyone age 50 or older can contribute an extra $6,000 annually on top of their usual 401(k) savings as long as they are working.
This means you may be able to save up to $24,000 in 2016 if you work for someone else, since the limit for those 401(k) plans is $18,000. [The writer means that 401(k) plans are only available to those who work for someone else, and 401(k) plans have a cap of $18,000 per year. If you are self-employed you have an SEP 401(k) and the limit for those is $12,500 per year and the catch-up is $3,000.] And if you save as much as possible over 15 years, you could put away an extra $90,000 (based on today's Catch-Up Contributions figures)—and that's if you stop working at 65.
"The more money you put an away, the more choices you have in retirement," says Scott Alan Turner, a personal finance expert and host of the Financial Rock Star podcast. "That includes where you will live, how you will spend your time, and how much travel you can do."
Still not convinced it's worth putting aside the extra $6,000 a year? Matt Rutledge, research economist at the Center for Retirement Research, says it's a smart move for pretty much everyone who can afford it. "Granted, everyone's situation is different, and if you think you will have a tax rate in retirement that will be similar to your current tax rate, you may not think it's important, but it's really hard to beat deferring your taxes to a later date. Plus, anyone who will have a lower tax bracket in retirement can see big savings down the road."