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Meaning / Definition of

Catch-up Contribution

Categories: Retirement and Pension,

You are entitled to make an annual catch-up contribution to your employer sponsored retirement savings plan and individual retirement account (IRA) if you're 50 or older. The catch-up amounts, which are larger for employer plans than for IRAs, increase from time to time based on the rate of inflation. You are eligible to make catch-up contributions whether or not you have contributed the maximum amount you were eligible for in the past. And if you participate in an employer plan and also put money in an IRA, you are entitled to use both catch-up options.Earnings on catch-up contributions accumulate tax deferred, just as other earnings in your account do. And when your primary contributions are tax deferred, so are your catch-up contributions.health savings accounts (HSAs), which you're eligible to open if you have a high deductible health plan (HDHP), allow catch-up contributions if you're at least 55. Your eligibility to make any contributions to an HSA ends when you turn 65.

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Definition / Meaning of

Systematic Withdrawal

Categories: Mutual Funds, Investing and Trading, Stocks,

Systematic withdrawal is a method of receiving income in regular installments from your mutual fund accounts, retirement plans, or annuity contracts. Generally, you decide how much you want to receive in each payment, and the schedule on which you want to receive the income. Those payments continue until you stop them or you run out of money. Unlike the alternatives, such as a pension annuity, systematic withdrawal gives you the flexibility to stop payments at any time, adjust the amount you receive, or choose a different way to access your money. And by withdrawing the same amount on a regular schedule, you limit the risk of taking a large lump sum at a time when your account value has dropped because of a market decline.The chief drawback of this withdrawal method is that there's no guarantee of lifetime income, so it's possible to deplete your account more quickly than the rate at which it's growing. That could mean running out of money.After you reach 70 1/2, you can use systematic withdrawals as a way to ensure you take out the minimum required distribution (MRD) from qualified retirement accounts and IRAs to avoid the risk of incurring IRS penalties.

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