RE: [CANSLIM] Off-topic: IRA question

From: "Ray Bunting" <dcowboys@otbnet.com>
Subject: RE: [CANSLIM] Off-topic: IRA question
Date: Wed, 15 May 2002 22:02:57 -0500
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March 31, 2002

Don't wait to take advantage of the new tax rules—act now

Now that you've filed your 1040, you may feel like forgetting about your
finances until next year. But it's never too early to put your dollars to
work for retirement goals. And the new tax law—with higher maximum
contribution limits for IRAs and employer-sponsored plans—offers even more
reason to start your contributions early. Spreading those contributions over
a number of months, rather than investing one lump sum at the deadline,
gives you a jump on your yearly investments and the benefits of investing
regularly.

This article recaps a few of the changes under the new tax rules. Keep one
thing in mind: All of these new, more-generous retirement savings provisions
will expire after 2010, unless Congress acts to extend them. That's all the
more reason to take advantage of the new limits right away.

New ceilings for your stashes
For 2002, maximum annual contribution limits have been raised to $3,000 (an
increase of $1,000) for both traditional and Roth IRAs, and the annual
deferral limit has been raised to $11,000 (a $500 increase) for most
employer-sponsored retirement plans (see tables below). The limits for IRAs
will go up by another $1,000 in 2005 and again in 2008, when you will be
allowed to contribute $5,000. For employer-sponsored retirement plans, the
employee deferral limits will increase by $1,000 each year until the annual
maximum reaches $15,000 in 2006.

People aged 50 or over have another advantage: For IRAs, they can contribute
an additional $500 each year now through 2005 and an additional $1,000 each
year starting in 2006. These catch-up provisions are even more generous with
employer plans, as the accompanying tables show: By 2006, a worker aged 50
or over can defer up to $20,000 a year—$5,000 more than the limit for those
under 50. For those who haven't been "maxing out" in the past, this is a
great opportunity to boost your savings.

New yearly limits boost savings outlook New annual contribution limits for
IRAs
Tax year Under
age 50 Aged 50
or over
2001 $2,000 $2,000
2002–2004 3,000 3,500
2005 4,000 4,500
2006–2007 4,000 5,000
2008 and later 5,000 6,000

New annual deferral limits for employees for 401(k), 403(b), 457, and
SAR–SEP plans
Year Under
age 50 Aged 50
or over
2001 $10,500 $10,500
2002 11,000 12,000
2003 12,000 14,000
2004 13,000 16,000
2005 14,000 18,000
2006 and later 15,000 20,000

To take advantage of this year's new limits for employer-sponsored plans,
you'll need to act soon to raise your contribution level. (In fact,
depending on your income and your employer's policies, you may not be able
to set aside enough between now and December 31, 2002, to reach the
contribution limit.) If you're turning 50 this year, you don't have to wait
until your birthday to hike up your deferral to the new maximum for those
aged 50 or over. Even if your 50th birthday falls in December 2002, you can
begin your higher contributions now.

In deciding whether to direct more contributions to an employer plan,
consider that an additional $500 a year is only an extra $41.66 a month out
of your salary. And because you contribute pretax dollars, the impact on
your take-home pay is even less. Assuming an 8% annual return, that extra
$500 annual deferral translates into an extra $24,000 in savings over 20
years. (Obviously, if you defer up to the new, higher contribution limits in
coming years, your additional savings will be even greater.) Procrastination
can be costly. If you wait 12 months to boost your salary deferral by $500 a
year, your wealth in 20 years would be about $2,400 lower, assuming an 8%
average annual return. (These hypothetical examples do not reflect returns
on any particular investments.)

Few people contribute the maximum allowed to their plans, and most spend
their retirement savings when they change jobs. While, on average, plan
participants contribute 7% of their pay, few consistently save that amount
throughout their careers. Typically, those who can benefit the most from
years of compounding returns—younger workers—often defer much less. Vanguard
estimates that the average 401(k) participant saves only two-thirds of what
he or she will need for retirement security. Contributing the maximum
allowed under the new tax law will increase your chances for a secure
retirement or possibly even allow an early retirement.

It only gets better
Besides the higher contribution limits, other changes have made IRAs and
employer-sponsored retirement plans more attractive.

For example, there is greater flexibility in rolling your assets between
various retirement plans. You can now roll over most assets from a 401(k)
plan into a 403(b), and vice versa, so long as the plans permit. It's also
easier to roll an existing IRA into your 401(k) or 403(b). And if you have
assets in a governmental Section 457 plan and have left service, you may now
roll over those assets into an IRA—a boon if you want more investment
choices than your 457 currently offers.

In addition, Congress reduced the maximum waiting time for an employee to
become fully vested in an employer's matching contributions to a retirement
plan. Under the new schedule, matching contributions must be fully vested
after only three years of service, down from the previous five years. Or if
the employer uses a schedule that involves vesting in increments,
contributions must be fully vested at six years, down from the previous
seven.

A final reminder: The new tax rules provide many benefits—but only to
investors who take advantage of them.

What you can do

Your tax rate is 1 percentage point lower now than in 2000 and will drop
again in 2004 and 2006. You can earmark some or all of your tax savings for
retirement with little impact on your current lifestyle.
If income limits prevent you from making a tax-deductible contribution to a
traditional IRA or an after-tax contribution to a Roth IRA, catch up in your
401(k) or 403(b) plan. Catch-up contributions for those aged 50 or over
aren't affected by nondiscrimination testing, which sometimes prevents
highly compensated workers from saving the maximum allowable amount.
If you have a Vanguard IRA®, consider setting up an Automatic Investment
Plan to have contributions to your IRA automatically deducted from your bank
account.
If you don't have a Vanguard IRA, open one now. You can invest in a wide
array of low-cost Vanguard mutual funds, or in any of the thousands of
no-load non-Vanguard funds available through Vanguard Brokerage Services.
VBS® also provides access to individual stocks, bonds, and CDs.
If you need assistance in rolling assets from an employer-sponsored
retirement plan to a Vanguard IRA, read How to Roll Over Your Retirement
Assets or call our retirement specialists at 1-800-669-8623.

Posted: April 29, 2002.


© 1995–2002 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing
Corp., Distrib. Terms & Conditions of Use | Obtain Prospectus

- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Tom Worley
Sent: Wednesday, May 15, 2002 9:58 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] Off-topic: IRA question


I believe the traditional IRA limit, for this year, is $2,500 plus if you
are over 50, I think is the age, you can add another $500 "catch up"
contribution. Still have not found out yet whether the "catch up" provision
is tax deferrable for those already in a 401K plan.

- ----- Original Message -----
From: "Hill, Ernie" <Ernie.Hill@ElPaso.com>
To: <canslim@lists.xmission.com>
Sent: Wednesday, May 15, 2002 10:48 PM
Subject: RE: [CANSLIM] Off-topic: IRA question


Jon,

That is correct for the Roth IRA, but I am not sure about the traditional
IRA.

E

 -----Original Message-----
From: J. Lobatto [mailto:jlobatto@nyc.rr.com]
Sent: Wednesday, May 15, 2002 9:43 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] Off-topic: IRA question

I believe amount has been raised from $2,000 to $3,000, but don't think
there's a change in the income/deductibility restrictions... Let us
know.....

Jon
- ----- Original Message -----
From: "Dave Cameron" <dfcameron@yahoo.com>
To: <canslim@lists.xmission.com>
Sent: Wednesday, May 15, 2002 10:13 PM
Subject: [CANSLIM] Off-topic: IRA question


> This is off-topic, so delete if you want.
>
> I have a question.   Part of my account is in a self-directed IRA.
> Its been stagnant lately because my income exceeds the level where I
> could deduct anything.   I've been told the rules have changed for
> 2002.   Can anyone point me to a site which gives the latest federal
> regulations on this?
>
> Thanks.
>
>
> =====
> Dave Cameron
> dfcameron@yahoo.com
>
> __________________________________________________
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