Retirement planning: Baby boomers not catching up
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The majority of clients at Hopwood Financial Services in Great Falls, Va., are high net-worth individuals. Herbert Hopwood, certified financial planner and president of the company, says he encourages clients to maximize their retirement savings and that education is a critical part of the process.

"Very often, someone who's making $100,000 will be concerned about retirement and max out their contributions, where the person making $250,000 won't be concerned, and that's mind-boggling to me.

"We try to be a reality check. If someone's 50 and they want to retire today and have $100,000 a year, we use a 3-percent-to-5-percent withdrawal rate and show them that they need $3.25 million. It blows them away. They have $1.5 million, and it shocks them into reality to see how much they need to set aside."

Catch-up opportunities are here today, but they may be gone tomorrow. The provisions are part of the Economic Growth and Tax Relief Reconciliation Act of 2001, commonly referred to as the Tax Relief Act or "egg-tra" for EGTRRA. Unless Congress extends the provisions or makes them permanent, the act will sunset at midnight, Dec. 31, 2010. If Congress fails to act, contribution and catch-up limits revert to pre-EGTRRA levels, plus inflation.

"Within the industry there is a fairly aggressive campaign to get Congress to make the provisions permanent," says Rick Meigs, president of 401khelpcenter.com.

"In my opinion, some are more likely than others. I can see catch-ups and Roth IRAs going away. It's not a prediction, but I see them as vulnerable because they're not being utilized. (Getting rid of them) is a way to give something back in the spirit of trying to reduce the deficit.

"It will boil down to the classic divide. Republicans will perceive it as increasing taxes if they're not extended. The Democrats will say, 'Look who's using them. People who can contribute large sums to their 401(k) are wealthy.' These arguments, unfortunately, always break down into partisanship. Catch-ups and the Roth IRA may be the sacrificial lambs."

Granted, many eligible participants are tapped out with too much debt and too many day-to-day financial obligations to contribute beyond the most basic levels to their retirement plans. But many workers with a few extra dollars to spare are underfunding their 401(k)s and IRAs. It's those folks who should seriously consider maximizing their contributions to the statutory limit and then taking advantage of catch-ups as much as possible.

People who are highly compensated and subject to limited 401(k) contributions should realize that they, too, may make catch-ups, says Meigs.

"I think that some of the more highly compensated individuals don't realize that they don't have to reach the $15,000 limit before making catch-ups. They believe they can't make catch-ups because they hear that you have to contribute $15,000 before making a catch-up and they're not allowed to contribute that much.

"If your plan limits you to, say, $6,000 then $6,000 triggers your ability to make a catch-up. If a plan imposes a restriction that's less than the statutory limit then that amount becomes the trigger point."

Meigs points out that highly compensated individuals who mistakenly contribute beyond their restricted limit usually receive a refund for the excess contribution. But if their plan has a catch-up provision they should have that excess amount reclassified as a catch-up.