The Internal Revenue Service limits the amount of money you can contribute to an individual retirement account to $5,000 a year before you turn 50. You can make catch-up contributions to a Roth IRA once you are in the same calendar year as your 50th birthday. You can make an additional $1,000 annual contribution after you have maximized your regular contribution.
Making Catch-Up Payments
If you make catch-up payments to your IRA, it takes five years to equal one year of missed payments. The IRS structures the Roth IRA to encourage as many people as possible to start contributing to their retirement accounts as early as they can. There is no direct method to contribute an amount over the annual maximum to your Roth IRA.
Finding Additional Sources of Funding
Finding additional methods of funding your Roth IRA if you have avoided doing so for years isn't easy, but with some changes in financial behavior, you can catch up on your contributions and enjoy tax benefits and a more enjoyable retirement. You can negotiate a salary increase with your current employer or request that they assist you in funding your IRA every year as a job perk. Reduce spending on non-essential items on your budget to free up more money to contribute to your Roth IRA. If you receive any surprise sources of money such as an inheritance, a tax refund or a lawsuit judgment in your favor, consider using the money to catch up on your retirement investments.
Rolling Over a 401k to a Roth IRA
The fastest method to catch up on payments to your Roth IRA is to roll over a company-provided 401k account to your Roth IRA. The maximum contribution to a 401k is $15,000 per year, so you can fill that up much faster than you can a Roth IRA. If you get a new 401k account at another company, you can roll over that one as well to your Roth IRA without incurring any penalties other than income tax. This was illegal before Jan. 1, 2008, but you were allowed to roll over a 401k to a traditional IRA and then convert that account to a Roth IRA.
Mechanics of 401k Rollover
You will have to pay income taxes on the money converted from the 401k to the Roth IRA, but the withdrawals from the IRA will be tax-free as normal. When you roll over your 401k, you will receive a check in the mail. You then have 60 days to deposit that check into a Roth IRA. This will not count towards your maximum annual contribution, allowing you to contribute more than you would be able to otherwise.
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