A Suze Orman exclusive

Washington got smart a few years ago and realized that we all need to save more on our own for our retirement. So they increased a bunch of limits on tax-deferred savings accounts such as 401(k)s and IRAs. But I know for a fact that most of you are clueless about the changes, and that means you could be missing out on the savings. Here’s a brief run-down on those limit increases:

• You can invest up to $14,000 in your 401(k) this year, compared to $13,000 for last year. If you are over 50 years old, you can pile in an additional $4,000 this year, for a total 401(k) investment of $18,000.
• The IRA annual contribution limit is now $4,000, up from $3,000 last year. Again, there’s a nice incentive for those of you over 50 years old; you can invest an additional $500 this year, for a total of $4,500.
• The income cutoffs to claim a full deduction for a traditional IRA have increased. If you are single and have a retirement plan at work, you can get a full deduction on your traditional IRA if your income is below $50,000 in 2005, which is up from $45,000 for last year. Married couples that file a joint tax return, and are both covered by retirement plans at work, can each claim the full deduction if their combined income is below $70,000; that’s also a $5,000 increase over last year. And if you are married and just one of you is covered by a retirement plan at work, you can get the full deduction if your combined income is below $150,000.
• The cutoffs to be eligible to invest in a Roth IRA remain the same: you can invest the full $4,000 if you are single and your income is below $95,000, or if you are a married couple filing a joint return and your combined income is below $150,000.

Stop Thumbing Your Nose at Free Money
A recent study by Hewitt Associates, a big global-benefits consulting firm, along with researchers from Harvard and the Wharton School at the University of Pennsylvania, found that 77 percent of employees at a Fortune 500 firm weren’t maxing out on their company’s 401(k) matching contribution.

Wake up, folks! Not contributing enough to your 401(k) to get the maximum contribution from your employer is literally throwing free money away. Would you turn down a bonus from your boss? I sure doubt it. So why aren’t you putting yourself in a position to get the max match? That’s just dumb. Sit down first thing tomorrow with your employee benefits rep in the H.R. department to figure out what you need to contribute this year to snag the entire matching contribution offered by your boss.

And those of you who can’t even get motivated to join 401(k) plans that offer a match are bordering on the insane. You aren’t getting a single penny from your boss’s largess. What’s up with that? And don’t you dare tell me it’s too confusing, or that you can’t afford it.

In fact, I find that once people sign up and have the money automatically deducted from their paycheck, they just as automatically learn to adjust their spending to offset the reduction in their income stream. Besides, come tax time you get a nice payback: your taxable income is lowered by the amount you contributed to the 401(k). So let’s say you manage to set aside $10,000 this year and you are in the 28 percent federal tax bracket. That will essentially reduce your tax bill to Uncle Sam by $2,800.