If you're fast approaching retirement age and becoming concerned about the amount of retirement funds you have set aside, the 2001 Tax Relief Act held some good news for you.  If you are over age 50, you are allowed to make "catch-up" contributions to your defined contribution retirement accounts.

Like normal IRA or 401(k) contributions, these catch-up amounts are tax deferred until they are removed from the retirement plan, at which point they will be fully taxed as income from retirement.

Applicable employer-sponsored plans include Section 401(a) employees' trusts, Section 401(k), Section 403(b) annuity plans, SEP plans, SIMPLE and Section 457 plans. 

There is a possibility that your employer-sponsored plan will need to be amended in order for you to make catch-up contributions. If your plan has not yet made the amendment, the IRS does provide model amendment language that can be used, but your company should check with its legal counsel or plan administrator on what your specific plan needs. 

As a general rule, a plan should be amended before allowing participants to make any catch-up contribution, but as long as the plan is amended by the end of the plan year in which the catch-up contributions are made, the plan should be able to demonstrate good faith compliance.

The additional catch-up deferral amounts are as follows:

As of now, the catch-up amounts listed above for 2006 will apply to all years thereafter as well.  The catch-up contribution is also limited by the excess of the participant's compensation over the elective deferrals that are not catch-up contributions.  

The increases above also do not apply to sec. 457 plans that are in the employee's last three years before retirement. The sec. 457 plans already have an accelerated tax-deferred contribution arrangement for these last three years under sec. 457(b)(3). 

These catch-up deferrals cannot be nondeductible contributions  If you have questions on these additional deferral amounts or your own qualification to take them, please do not hesitate to give us a call.