Credit Union News Article

IRA “Catch-Ups” Earn Big Bucks

In 2008, your maximum IRA (individual retirement account) annual contribution limit increased to $5,000. And if you are age 50 or older, you can exceed that limit by an additional $1,000 because of catch-up provisions designed to boost your IRA contribution dollars.

Here's how those catch-up provisions can pay off.

Let's say you're 50 years old. If you contribute $5,000 a year for 20 years to your IRA, you'll accumulate $200,593, assuming a 7% average return between ages 50 and 64, and a 5% average return between ages 65 and 69.

However, if you take advantage of the catch-up provision and contribute $6,000 a year for those same 20 years, you'll accumulate $240,712 under the same assumptions.

Remember that all the IRA expansion and pension reform provisions will expire at the end of 2010 if Congress does not extend or make them permanent; the example here assumes catch-up contributions will continue beyond 2010.

For more information on IRAs, check the IRS Web site.

Editors note: Contributions are assumed to take place at the start of the year. Investments in the first 15 years are assumed to be made in a mix of stocks and fixed-income accounts. Investments in the last five years are assumed to be more conservative.