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Two Steps Ahead: Catch-up Contributions Can Boost IRA Retirement Savings The annual IRA contribution limit for 2007 is $4,000, but an individual age 50 or older can instead contribute up to $5,000 to his or her IRA. Catch-up contributions can have a significant impact on IRA retirement savings, as illustrated by the graph below. The example assumes a 6% rate of return, maximum catch-up contributions of $1,000 at the end of every year, maximum regular IRA contributions at the end of every year ($4,000 in 2006 and 2007, $5,000 in 2008 and beyond1), tax-deferred growth, and an investment horizon of 20 years.
1 For tax years beginning in 2009, IRA regular contribution limits (but not catch-up limits) are subject to annual cost of living inflation adjustments; therefore, the actual regular contribution maximums for tax years 2009-2025 have not yet been determined by the Treasury. For the illustration above, a $5,000 regular contribution has been used for tax year 2008, and for tax years 2009-2025. Adapted from material provided by Forefield Inc. |
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