Take Advantage Of Higher Ira Contribution Limits


If one of your goals is to boost your retirement savings this year, you can count on some extra help from your Uncle Sam. That's because you'll be able to contribute more to your IRA in 2008.

This is a great opportunity for you -- so you'll want to make the most of it.

Here are the details: The contribution limit for both Traditional and Roth IRAs will increase from $4,000 per year in 2007 to $5,000 per year in 2008.

If you're 50 or older, the annual limit will rise from $5,000 to $6,000.

Keep in mind, though, that your ability to contribute to a Roth IRA may be limited by your income; see your tax adviser for more details. Of course, if you weren't putting in the maximum amount to your IRA in 2007, you might think there's even less of a chance that you'll fully fund your IRA in 2008.

It's certainly true that $5,000 or $6,000 is a considerable sum -- especially if you try to pay it all at once.

However, you don't have to do that.

While it might be to your advantage to fully fund your IRA early every year -- you'd be giving your money more time to potentially grow -- you can make smaller contributions throughout the year.

In fact, you've actually got until the tax filing deadline of each year to fund your IRA for that year.

So, if you chose, you could spread your 2008 IRA payments over 15 months -- 12 months in 2008, and the first three months of 2009. That means you could put in $333.33 per month, if you're under 50, or $400 per month, if you're 50 or older.

Maintain your lifestyle

Even those amounts might pose a challenge to your cash flow, but you need to consider just how important it is to save for retirement. Many financial experts say that you will need between 80 percent and 100 percent of your pre-retirement income just to maintain your lifestyle.

If you plan on traveling extensively, purchasing a vacation home or incurring other significant expenses during your retirement years, you may need even more money.

That means you'll have to rely on all your available resources -- your Social Security, your 401(k) or pension and your other savings and investments, of which an IRA can be a significant part. An IRA is one of the best retirement savings vehicles around.

A traditional IRA has the potential to grow on a tax-deferred basis, which means your earnings can potentially grow faster than they would on an investment on which you paid taxes every year.

A Roth IRA's earnings have the potential to grow totally tax-free, provided you don't take withdrawals until you reach age 59-1/2 and you've had your account for at least five years.

Furthermore, you can fund either type of IRA with virtually any security you choose -- stocks, bonds, Certificates of Deposit (CD), Treasury bills, etc.

Depending on your income level, you might even be able to deduct some, or all, of your Traditional IRA contributions from your taxes. Roth IRA contributions are never tax deductible. As you can see, you'll be helping yourself greatly if you contribute the maximum amount to your IRA in 2008 -- and all the years beyond.

-- Scott Flake is a licensed financial adviser with the firm of Edward Jones. He hosts a weekly informal investment discussion on Tuesdays at 10 a.m. at his office at 411 S. Beeline Highway, Suite B. For more information, call him at (928) 468-1470.

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