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.
[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. This is reflected in relatively high investment yields in the first 15 years. Investments in the last five years are assumed to be more conservative. This is reflected in somewhat lower yields in the last five years. Example in text does not consider annual inflation adjustments to contribution limits. The next adjustments are scheduled to take place after tax year 2008.]
Copyright 2008 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.