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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.

Plan

2004 Contributions

2003 Contributions

  

Regular

Catch-up

Regular

Catch-up

401(k) Plans*

$13,000

$3,000

$12,000

$2,000

SIMPLE Plans

$9,000

$1,500

$8,000

$1,000

Keogh Plans

$41,000

—

$40,000

—

IRAs

$3,000

$500

$3,000

$500


*

Limits for equivalent plans in federal, state, and local government and tax-exempt organizations are similar.

Click here to view previous tax tips.


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