Retirement Saving

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) allows retirement plan participants to set aside funds at an accelerated rate: its special "catch-up" provisions apply to Individual Retirement Accounts (IRAs), 401(k) plans, 403(b) plans, and 457 plans.

Annual contributions to traditional and Roth IRAs are capped at $4,000 in 2006, but will climb to $5,000 in 2008. The EGTRRA allows contributions to 401(k) and 403(b) savings plans of up to $15,000 during 2006, an increase of $1,000 over the previous year. The limit for 457 plans is also $15,000 in 2006. From 2007 on, contribution amounts for 401(k), 403(b), and 457 plans will be indexed annually for inflation.

The EGTRRA also provides for taxpayers aged 50 and older to make "catch-up" contributions to their retirement plans. Traditional IRA and eligible Roth IRA holders can save an extra $1000 a year in 2006, while eligible 401(k), 403(b), or 457 holders can save an additional $5,000 in 2006. After 2006, the catch-up amounts for IRAs will be indexed for inflation in $500 annual increments.

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