Keene - Those nearing retirement still have time to catch up

Thursday, February 13, 2003

Hello. Are you listening?

In 2001, Congress sent a loud message to workers across America: you need to save harder for your own retirement. It sent this message via the 2001 Tax Relief Act, which dramatically boosted the regular contribution limits to employer retirement plans and individual retirement accounts (IRAs). The act threw in a bonus for workers age 50 and over, letting them sock away even more money.

Yet few are taking advantage of the opportunities. Research groups such as the Employee Benefit Research Institute report that most workers are failing to take advantage of even the old limits, let alone the new ones.

Several reasons account for this lack of saving:

-- Workers don't realize how much they need to save for a comfortable retirement, especially compared with what a corporate pension plan would pay them

-- Workers think Social Security will see them through

-- They "don't have the money" even though they may spend hundreds of dollars a year just on designer coffee

-- Many workers can't take advantage of the catch-up bonus because their employers have yet to--and may not--change their retirement plan rules to allow for the catch-up.

-- Not knowing that the rules have changed and allow additional savings.

For those of you who are or should be contributing to retirement accounts -- particularly those of you age 50 and over--here's a refresher on the new contribution limits, many of which took effect in 2002.

The regular contribution limit for IRAs, both Roth and traditional, is $3,000 for both 2002 and 2003 -- up from $2,000 in 2001. The limit climbs to $4,000 in 2005, $5,000 in 2008 and is indexed annually for inflation after that, in $500 increments. (Remember, you can still contribute to your IRA for 2002 as late as April 15, 2003.)

On top of these higher limits, workers age 50 and over can kick in another $500--roughly five months' worth of lattes. The catch-up amount doubles to $1,000 starting in 2006 and is also indexed.

Workers who participate in a 401(k), 403(b), salary reduction simplified employee pension (SARSEP) or government 457 plan can contribute $12,000 in 2003, with a qualified catch-up amount of $1,000. (Participants in 457 plans cannot use this catch-up provision in their final three years before retirement.) These limits also will be indexed for inflation in $500 increments.

The self-employed who have a solo 401(k), which allows them to put away as much as $40,000 a year, also can contribute the $1,000 catch-up if they're 50 or over.

The maximum regular contribution limits for the employer-sponsored 401(k) and similar plans increases $1,000 a year until they top out at $15,000 in 2006. The catch-up limit also rises $1,000 a year to a maximum of $5,000 in 2006. That means a worker age 50 or over could sock away $20,000 a year starting in 2006!

Participants in the savings incentive match plan for employees (SIMPLE) will also see their contribution limits rise, from $8,000 in 2003 to $10,000 in 2005. The catch-up limits are $1,000 for 2003 and go to $2,500 by 2006.

But these higher limits will mean nothing if workers don't get serious about saving for retirement, say financial planners. Otherwise, they're going to remain in the workforce for longer than they may wish.

Wm. Gerry Keene III, CFP, RFC, is a Certified Financial Planner practitioner with Keene Financial Group in Cape Girardeau. He is an investment adviser representative with securities offered through InterSecurities Inc., member NASD, SIPC. 800 W. 47th St, Suite 610, Kansas City, Mo., 64112, 816-561-8765 (1-800-827-1929, 33KEENE {335-3363}, or

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