Catching Up on Retirement Savings

Posted Oct 12, 2009 | Kyle D. Findlay

A recent Gallup Poll survey (April 2009) revealed that for the first time this decade, a majority of non‐retired Americans, 52%, doubt they will have enough money to live comfortably once they retire; only 41% say they will. This comes as no surprise given the economic storm that we experienced in 2008, which had devastating effects on retirement savings accounts and home values. In fact the survey showed that pre‐ retirees reliance on individual stock or mutual fund investments for retirement expenditures has dropped by 30% since 2001.

For Americans who are looking to be proactive with their retirement plans, there are some great opportunities available to take advantage of tax efficient accounts. The Pension Protection Act of 2006 (PPA) has provided key provisions that affect both pension plans as well as defined contribution plans and individual retirement accounts. This article will discuss benefits that are relevant to the latter two.

One of the most significant provisions provided by the PPA is it made the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permanent. The EGTRRA was a revolutionary act that provided for some aggressive changes to retirement plans, and was scheduled to expire in 2011. By extending this act, Americans have the opportunity to invest more each year in tax‐advantaged retirement plans, which will help investors recover some of the losses they’ve experienced.

Some important provisions from this act include increased contribution limits to IRAs and Roth IRAs as well as increased deferral amounts into 401(k)s, 403(b)s, 457 Plans, SARSEPs, SEP IRAs, and SIMPLE IRAs. In addition to that, investors age 50 and older have the opportunity to make catch‐up contributions. This can be as much as $5,500 in Defined Contribution plans. Below is a table that summarizes these contribution limits and deferral amounts.

	Contribution Limits Age < 50	Contribution Limits Age > 50
IRA (Traditional and Roth)*	$5,000	$6,000
401(k)	$16,500	$22,000
403(b)	$16,500	$22,000
457	$16,500	$22,000
SARSEP	$16,500	$22,000
SEP IRA	$49,000	$54,500
SIMPLE IRA	$11,500	$14,000

* There may be limitations based on income levels.

Employer contributions can be made on your behalf up to a total contribution of $49,000 (or $54,500 if over age 50) for Defined Contribution plans. This amount includes employee deferral contributions and employer contributions (profit sharing contributions and matches). Beginning in 2010 contribution limits will be indexed by inflation, which will allow investors the opportunity to maintain a healthy savings level in tax preferential accounts for years to come.

The 457 plan offers a “Double‐Limit Catch‐up” if you are within 3 years of your full retirement age. If you have under‐contributed to your 457 plan in the past, this provision allows you to double your 457 contributions ($33,000 in 2009).

So maybe you’re investment nest egg has taken a dip and you’re wondering if you’ll ever be able to retire. Don’t despair. These are some great ways to set money back for retirement while reducing your current tax burden. In order to determine which account is right for you to save in, you should consult with a financial professional.

Reference: http://www.gallup.com/poll/117703/americans‐increasingly‐concerned‐retirement‐income.aspx