Tax Tip of the Week
For the week of February 16, 2004

Contribute more to your retirement savings this year

The New Year brings new opportunities to save for retirement — something we all need to do. The contribution limits for a variety of tax-advantaged retirement plans increased on January 1st. New and old limits are shown in the box below.

You can contribute $1,000 more to most types of qualified plans this year. That brings the maximum pre-tax contribution to $13,000 for 401(k) plans. The same limit applies if you participate in equivalent plans offered by government and tax-exempt organizations.

If your company offers a SIMPLE retirement plan, your new contribution limit is now $9,000. The new catch-up contribution is $1,500. For Keogh plans, your 2004 contribution limit is $41,000.

Most catch-up contribution limits also increased. These allow you to make additional contributions if you are age 50 or above. If you'll reach age 50 this year, you can start your catch-up contributions immediately. You don't have to wait until after your birthday.

Your maximum contribution to an individual retirement account (IRA) didn't change this year. It stays at $3,000 with a $500 catch-up contribution.

All these qualified plans offer the advantage of tax-free compounding of amounts in the plan. This tax advantage can be hard to beat, even though the 2003 tax cuts made investing in taxable accounts more competitive for some.