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Saving strategies for the over-50 crowd

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Here are the maximum contributions you can make:
IRAs (Roth or traditional)  
2007 $4,000 -- all workers
$5,000 -- workers age 50 or older
2008 $5,000 -- all workers
$6,000 -- workers age 50 or older
After 2008 Maximum IRA contributions are inflation-adjusted in $500 increments
401(k)s (Roth or traditional)  
2007 $15,500 -- all workers
$20,500 -- workers age 50 or older
After 2007 Maximum employer plan contributions are inflation-adjusted in $500 increments
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Maxing out these catch-up contributions can make a huge difference in the amount you end up with at retirement.

For example, Mary has saved $25,000 toward retirement. At 50 she continues to save $6,000 a year in a 401(k) plan earning 8 percent a year on average until she retires at 65. The total amount saved would be almost $245,000, says Diana Plucienkowski, executive vice president and Certified Financial Planner at Meg Green & Associates, a Miami-based financial planning firm.

Iinstead, if Mary takes full advantage of allowable catch-up contributions between ages 50 and 65, her savings would jump to $635,922.

Making the maximum contributions to a Roth IRA at the same time would boost that figure to nearly $800,000.

Of course, contributing $25,000-plus a year is not going to be a piece of cake and may put a crimp in Mary's current lifestyle.

To Roth or not to Roth
For some people, a Roth 401(k) or Roth IRA is a smart option.

"Every dollar that comes out of an IRA or a 401(k) is taxed, and that's not a good thing for some retired people," Rosenberg says. "Contributions to a Roth 401(k) or Roth IRA are taxed as salary and are tax-free at the time of withdrawal, so none of the growth is ever taxable."

People who expect to continue working after retirement might still be in a high tax bracket, Plucienkowski says, and for them a Roth IRA is a good alternative. "Also, if you leave it to your heirs, they won't have to pay taxes on it."

But there are conditions. To qualify for the Roth IRA contributions, adjusted gross income must fall below $99,000 for a single person or $156,000 for a married couple. In 2010, you can convert assets from a traditional IRA to a Roth even if your earnings exceed these amounts.

Supplementary strategies
Financial experts recommend a number of supplemental strategies to boost retirement savings.

 
 
Next: "O'Neill recommends paying down your debts ... "
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