Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Playing catch-up in our IRA's

Dear Dr. Don,
My husband and I need to play catch up in saving for retirement. We are both in our 50s. We each want to start an IRA. How much can we contribute per year? Thank you for your time and help. It is greatly appreciated, as is your helpful site!
Mary Mount

Dear Mary,
The tax code now allows you to jump-start your IRA investment. When the annual contribution limits were bumped to $3,000 a couple of years ago, people 50 or older also were given the opportunity to make an additional contribution of $500 for a total of $3,500. As shown in the table below, IRA contribution limits and the 50+ differential will increase sporadically over the next seven years.

If neither you nor your spouse are covered by a qualified retirement plan at any time during the year, your allowable contributions to a traditional IRA are fully tax deductible, subject to certain income restrictions. See IRS Publication 590, Individual Retirement Arrangements (IRAs) for additional information.

A way to jump-start this even more is by opening Roth IRA accounts instead of traditional IRA accounts. The contribution limits are the same for the Roth IRA accounts; the difference is that the contributions aren't tax deductible. Instead, qualified distributions in retirement are free of federal taxes.

So you pay the taxes now and reap tax-free returns later. Consult with your tax professional before deciding on this approach, since your current tax rates and expected tax rates in retirement will influence whether Roth IRA accounts are the right decision for you.

-- Updated: Feb. 25, 2004