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Ramp
Up Retirement Savings
According
to financial pundits, one of the most successful methods for accumulating wealth
is to "pay yourself first." The trick is to invest a percentage of
your income – about 10 to 15 percent – automatically, preferably
before it reaches your hands.
Fortunately,
many employees can participate in an employer-sponsored retirement plan and
contribute a percentage of their salary on a pre-tax basis. Workers who don't
have access
to an employer plan may be able to open an IRA or another type of investment or retirement account.¹
One way
to ramp up your savings is by keeping up with increasing retirement plan
contribution limits. Find your plan below and see how much more you will be
eligible to
save in 2005.
 401(k),
403(b), and 457 plans:
$14,000 ($18,000 for workers aged 50 and older)
SIMPLE:
$10,000 ($12,000 for workers aged 50 and older)
Traditional
and Roth IRAs:
$4,000 ($4,500 for workers aged 50 and older)
Not sure
you can afford to set aside any more of your salary? Remember that funds
deposited in an employer-sponsored retirement plan are not subject to current
income tax withholding, so the entire amount goes into the plan. By contrast,
each dollar of take-home pay may represent anywhere from two-thirds to
three-fourths of actual earnings, depending on an individual's tax situation.
The
Case of IRAs
You can typically arrange for your bank to make automatic IRA contributions from
your checking or savings account each month. IRA contributions may be deductible
from annual taxable income.² Adjusting your income tax withholding may help
reduce the effect on your take-home pay.
To make
progress toward your long-term retirement goals, consider taking advantage of
higher retirement plan contribution limits, as well as supplementing your
tax-deferred accounts with additional stock, bond, and cash-equivalent
investments. Please call if you want to review your retirement savings strategy.
1)
Distributions from most employer-sponsored retirement plans and traditional IRAs
are taxed as ordinary income and, if taken prior to reaching age 59½, may be
subject to an additional 10 percent federal income tax penalty.
2) Workers who do not participate in an employer-sponsored retirement plan can
make tax-deductible contributions to a traditional IRA. For workers who are
active participants in an employer plan, the IRA income tax deduction is phased
out when modified adjusted gross income exceeds certain limits.
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