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Are You Aware of the New Benefits of IRAs?

For almost 30 years, Individual Retirement Accounts have been one of the cornerstones of many individuals' retirement planning efforts. The 2001 Tax Act has made this good financial tool even better.

New Contribution Limits
From the 1980's through 2001, the annual contribution limit for IRAs was $2000. Beginning with contributions for  2002, the annual contribution limits were increased. Here are the new limits:


Annual Contribution Limit

2001(old limit)


2002 to 2004


2005 to 2007




After 2008

Indexed to Inflation

These increased limits will make it easier for everyone to accumulate more money for retirement. Just consider what this means for someone age 35 today. Under the old law with $2000 annual contributions (for 30 years) earning 7%, that 35 year old would have accumulated about $204,000 at age 65. With the new contribution limits, their contributions would have grown to over $568,000 at age 65 (assuming just a 3% inflation rate after 2008). Maybe that person could be able to retire at age 62 instead.

Catch-Up Contributions
The new law also introduces the concept of catch-up contributions for IRAs. Individuals age 50 and over can make additional contributions to help them accumulate more in their IRAs. The catch-up contributions are limited as shown below:


Catch-up Contribution Limit


No provision









After 2005


For an individual that turned age 50 in 2002 and that made the full catch- up contributions until he or she retires at age 65, their IRA balance will be almost $23,000 higher assuming an earnings rate of 7%.

Individual Retirement Accounts continue to provide all the tax-deferral benefits that have made them so popular in the past. Now they are just better. Make sure to examine how you can use your IRA to provide for a financially secure retirement.