George Robertson, CFP, CRPS, AIF

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"Smoothing the Course" for Retirement Saving

If you are saving for retirement, you may want to give a nod of appreciation to those responsible for passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Pension Protection Act of 2006. Across-the-board changes made in 2001 allow retirement plan participants to set aside funds at an accelerated rate, and in 2006, many of the increases were made permanent. Those nearing retirement can also take advantage of special "catch-up" provisions that apply to Individual Retirement Accounts (IRAs), 401(k) plans, 403(b) plans, and 457 plans.

Annual contribution limits for traditional and Roth IRAs are capped at $5,000 in 2010. Keep in mind: If you decide to take distributions from either a Roth or a traditional IRA prior to retirement and age 59½, the funds will be taxed as ordinary income and may be subject to a 10% Federal income tax penalty. Additionally, you must hold a Roth IRA account for 5 years in order to avoid penalty.

If you have a 401(k) or 403(b) savings plan, contributions of up to $16,500 are allowed during 2010. The limit for those in 457 plans is also $16,500. Going forward, the contribution amounts for all three of these retirement savings plans will be indexed annually for inflation. (You may, however, be limited by your employer in the amount you can contribute, based on a percentage of your compensation.)

Special "Catch-Ups" for Those 50 or Older

Meanwhile, taxpayers who are age 50 or older are allowed to make "catch-up" contributions to their retirement plans. Traditional IRA and eligible Roth IRA holders can save an extra $1,000 a year in 2010. Those with eligible 401(k) or 403(b) or 457 plans can save an additional $5,500.

Stay on Course

With the ever changing nature of tax laws, a great deal can happen on the legislative front with respect to retirement plan savings. As a result, you should check regularly to determine if you're "up to par" with all of your savings opportunities.

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