Older workers can catch up on savings
- By Milt x_Zall
- Jan 03, 2001
Many taxpayers know that beginning in 2002, they will be able to annually
contribute significantly more to their individual retirement accounts and
qualified retirement plans. But it's not as widely known that taxpayers
age 50 or older can contribute even more beyond these higher limits.
As part of the new Tax Relief Act, Congress included several "catch-up"
provisions for taxpayers nearing retirement. Although put in to help late-starting
older investors — particularly women who may have been out of the workforce
for years — the catch-up provisions are available to any worker 50 or older,
even those who have maximized retirement contributions for years, according
to Dennis Filangeri, a certified financial planner based in San Diego.
Indeed, Filangeri believes that the people who can most take advantage
of the higher contribution and catch-up provisions are wealthier taxpayers
who have the extra income with which to "catch up," though there is a catch
for many of them, as well.
As with many portions of the new tax act, taxpayers need to pay close
attention to the new provisions in order to leverage the most from them.
The catch-up provisions vary according to the type of retirement plan. The
following shows the contribution limits for workers of all ages and the
additional catch-up amounts for those 50 and over, by calendar year.
Individual Retirement Accounts
Here are the contribution limits for all types of IRAs except the education
IRA.
| Year | All ages | Catch-up amount |
| 2002 | $3,000 | $500 |
| 2003 | $3,000 | $500 |
| 2004 | $3,000 | $500 |
| 2005 | $4,000 | $500 |
| 2006 | $4,000 | $1,000 |
| 2007 | $4,000 | $1,000 |
| 2008 | $5,000 | $1,000 |
Regular contribution limits and catch-up amounts will be indexed annually
for inflation after 2008 and will increase in $500 increments.
The catch for wealthier taxpayers is that the Tax Relief Act did not
remove or loosen the income limitations on IRAs. Thus, many wealthier taxpayers
don't qualify for deductible or Roth IRAs and, therefore, can't take advantage
of the increased contribution and catch-up amounts.
Qualified Plans
These are 401(k), 403(b) tax-sheltered annuities, salary reduction simplified
employee pension (SEP) and government 457 plans. Thrift Savings Plan contributions
aren't yet covered, but the Office of Personnel Management is considering
making the catch-up provision available to federal workers.
| Year | All ages | Catch-up amount |
| 2002 | $11,000 | $1,000 |
| 2003 | $12,000 | $2,000 |
| 2004 | $13,000 | $3,000 |
| 2005 | $14,000 | $4,000 |
| 2006 | $15,000 | $4,000 |
Regular contribution limits and catch-up contributions will be indexed
annually for inflation after 2006 and will increase in $500 increments.
Furthermore, the catch-up amounts apply even if the plan's maximum contribution
limit is lower than the maximum allowed by federal law. A highly paid employee
also can take the maximum catch-up amount even when anti-discrimination
rules prevent the employee from taking the maximum deferral allowed by federal
law.
Catch-up provisions don't apply to SEP plans established after 1996.
Participants in 457 plans should be aware that the catch-up rules don't
apply in the their final three years before retirement, but the law already
allows the doubling of contributions during those final three years.
SIMPLE
The Savings Incentive Match Plan for Employees is for businesses with
100 or fewer employees to offer retirement benefits through employee salary
reductions and matching contributions.
| Year | All ages | Catch-up amount |
| 2002 | $7,000 | $500 |
| 2003 | $8,000 | $1,000 |
| 2004 | $9,000 | $1,500 |
| 2005 | $10,000 | $2,000 |
| 2006 |
| $2,500 |
Contribution limits will be indexed for inflation in $500 increments,
beginning in 2006 for regular contributions and beginning in 2007 for catch-up
amounts.
Zall is a retired federal employee who since 1987 has written the Bureaucratus
column for Federal Computer Week. He can be reached at miltzall@qis.net.