When saving for retirement, catch up if you can

If you're age 50 or older, you’re probably not boosting your retirement savings as much as you could.

Research indicates that few people are taking advantage of “catch-up” contributions, which allows fifty-somethings to contribute more than the standard limit to their 401(k)s and IRAs and boost their nest eggs. A study by mutual-fund company Vanguard’s Center for Retirement found that only 13 percent of the eligible participants made catch-up contributions in 2004. Another study by the Investment Company Institute (ICI) in Washington D.C., offered slightly better news:  Only one-third of households with a person over age 50 made an IRA contribution in 2004, but out of that group, 47 percent made catch-up contributions.

But there is hope for those wanting to catch up on their catch-up contributions: You still have a few weeks to make an IRA contribution for tax year 2005. If you act before April 17, you can put in $4,000 (or $4,500 for those 50 and older) to your account.

For 2006, the 401(k) contribution limit is $15,000 participants younger than age 50, but those age 50 or older may contribute an additional $5,000 for a total of $20,000. For Roth IRAs and traditional IRAs, the annual contribution limit is $4,000, but fifty-somethings can put in an extra $1,000 for a total of $5,000.

Lack of funds and financial expertise
It's easy to see why most people don't take advantage of maximizing their retirement funds — they may not be able to financially. “That’s a lot of money to save,” said Stephen Utkus, a principal at the Vanguard Center for Retirement and an author of the study. “If you earn $75,000 and you’re already contributing 10 percent to your 401k for $7,500, that’s still well below the current threshold.”

And with so many changes in the tax laws, often on an annual basis, many people may not even be aware of the catch-up allowance, said Ed Slott, a certified public accountant and author of Parlay Your IRA into a Family Fortune. “Most people only hear of the $4,000 contribution limit because many financial institutions and advisors don’t bother to ask them if they’re over age 50. And if they’re not asked, people don’t know that they should ask.”

Those contributing on a regular basis to their retirement plan may not have to worry so much, said Utkus. “But based on the typical American’s savings rate, most of us should be taking advantage of saving in general.”

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