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CATCH-UP CONTRIBUTIONS

A recent survey found that 23% of people were very confident about having enough money to live comfortably through their retirement years. At the same time, 33% were not confident.

Congress in 2001 passed a law that can help older workers make up for lost time. But few may understand how this generous offer can add up over time.

The “catch-up” provision allows workers who are over age 50 to make contributions to their qualified retirement plans in excess of the limits imposed on younger workers.

How It Works

Contributions to a traditional 401(k) plan are limited to $20,500 in 2022. Those who are over age 50 – or who reach age 50 before the end of the year – may be eligible to set aside up to $27,000 in 2022.

Setting aside an extra $6,500 each year into a tax-deferred retirement account has the potential to make a big difference in the eventual balance of the account. And by extension, in the eventual income the account may generate. (See accompanying chart.)

The chart shown below (or to the left) traces the hypothetical balances of two 401(k) plans. The blue line traces a 401(k) account into which the maximum regular annual contributions are made each year, but no catch-up contributions. The green line traces a 401(k) account into which the maximum regular and full catch-up contributions are made each year.

Upon reaching retirement at age 67, both accounts begin making payments of $4,000 a month.

The hypothetical account without catch-up contributions will be exhausted by the time its beneficiary reaches age 83.

Both accounts assume annual savings and an annual rate of return of 5%. The rate of return on investments will vary over time, particularly for longer-term investments. Annual contributions to and withdrawals from both accounts have been increased by 2% each year to account for potential 2% inflation.

Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

Source: This hypothetical example is used for comparison purposes and is not intended to represent the past or future performance of any investment. Fees and other expenses were not considered in the illustration. Actual returns will fluctuate.  https://www.coxglobalassociates.com/resource-center/retirement/catch-up-contributions 1. EBRI, 2019 Retirement Confidence Survey Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72.

AND THE EXECUTOR IS

U.S. Supreme Court Justice Warren Burger is famous for more than just his time on the bench. When he died in 1995, he left a 176-word will that gave no specific power to his executors. As a result, he reportedly cost his estate tens of thousands of dollars in attorney’s fees.

Judge Burger’s case shows that even law-savvy individuals can make mistakes when it comes to writing their own legal documents. But giving executors the proper power is only one piece of the puzzle. How do you choose an executor? Can anyone do it? What makes an individual a good choice?

Many people choose a spouse, sibling, child, or close friend as executor. In most cases, the job is fairly straightforward. Still, you might give special consideration to someone who is well organized and capable of handling financial matters. Someone who is respected by your heirs and a good communicator also may help make the process run smoothly.

Above all, an executor should be someone trustworthy since this person will have a legal responsibility to manage your money, pay your debts (including taxes), and distribute your assets to your beneficiaries as stated in your will.

If your estate is large or you anticipate a significant amount of court time for your executor, you might think of naming a bank, lawyer, or financial professional. These individuals will typically charge a fee, which would be paid by the estate. In some families, singling out one child or sibling as executor could be construed as favoritism, so naming an outside party may be a good alternative.

Whenever possible, choose an executor who lives near you. Court appearances, property issues, even checking mail can be simplified by proximity. Also, some states place additional restrictions on executors who live out of state, so check the laws where you live.

Whomever you choose, discuss your decision with that person. Make sure the individual understands and accepts the obligation – and knows where you keep important records. Because the person may pre-decease you – or have a change of heart about executing your wishes – it’s always a good idea to name one or two alternative executors.

The period following the death of a loved one is a stressful time and can be confusing for family members. Choosing the right executor can help ensure that the distribution of your assets may be done efficiently and with as little upheaval as possible.

What Will?

Take a look at some famous people who left without having a will in place:

• Jimi Hendrix
• Bob Marley
• Sonny Bono
• Pablo Picasso
• Michael Jackson
• Howard Hughes
• Abraham Lincoln

Source: https://www.coxglobalassociates.com/resource-center/estate/and-the-executor-is and LivingTrustNetwork.com, 2022

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