Take Advantage of Higher IRA

"Catch-up" Limits

Now that it's 2006, you are one year closer to retirement. Of course, if you are still in your twenties, this milestone may not mean that much to you. But if you are 50 or older, the prospect of actually becoming a retiree looms larger as the years go by. Fortunately, it's just become a little easier to build savings for your retirement years. Why? Because, starting January 1, 2006, you can put in $1,000 in "catch-up" contributions to your traditional or Roth IRA, up from $500 in 2005. So, given the $4,000 annual limit for regular contributions, you can put in a total of $5,000 in your IRA in 2006.

Fully funding your IRA should be one of your top investment priorities. Keep in mind that IRAs offer two major benefits:

Tax advantages - If you have a traditional IRA, your earnings have the potential to grow tax-deferred, so your money can grow faster than it would in an investment on which you paid taxes every year. (You will eventually have to pay taxes on your earnings, but, by then, you may be in a lower tax bracket.) Also, depending on your income level, your contributions may be tax-deductible. When you have a Roth IRA, you can withdraw your contributions at any time, free of taxes. You can also take out earnings, free of taxes, as long as you don't begin withdrawals until you are 59-1/2 and you've had your account for at least five years.

Variety of investment options - You can invest your IRA in virtually any security you choose - stocks, bonds, Treasury bills, certificates of deposit, etc. In fact, you're not confined to just one type of investment within your IRA; you can create a diversified portfolio containing a variety of holdings.

Given these tax advantages and this investment flexibility, it's almost certainly a good idea to "max out" on your IRA every single year. Of course, it's not always that easy to come up with $5,000 at one time, but you don't have to. You can fund your IRA over the course of a year by putting in about $416 per month. And, to make it even easier for you to completely fund your IRA, you could have that $416 moved automatically, via a bank authorization, from your checking or savings account to your IRA.

On the other hand, if you can possibly afford to pay the full $5,000 in the first few weeks of the year, you may well end up with more money in the long run. That's because you'll be giving your money more time to grow - and, as an investor, time can be your greatest ally.

But however you do it - over 12 months or right away - put the full amount into your IRA. Along with your 401(k) or other employer-sponsored retirement plan, your IRA is one of the best retirement-savings vehicles you have available. And now that you are on the "plus" side of 50, you'll really want to focus your efforts on making sure you have the resources available to enjoy the retirement lifestyle you deserve. n