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It stands to reason that increasing the amount you contribute can mean more money in your coffers in the future. When the contribution limit for Individual Retirement Arrangements (IRAs) increases, the ability to accumulate more funds for retirement needs has also increased.
Through 2001, investors could only contribute a maximum of $2,000 per year to their IRAs. The limit increased to $4,000 in 2005 and to $5,000 in 2008. Thereafter, the limit will increase in $500 increments based on cost of living adjustments.
What do these contribution-limit increases mean to you as an account holder? If you were to invest $2,000 in your IRA at the beginning of every year for 30 years, assuming a 9% annual rate of return, you could retire with over $297,000 in your account. By increasing your contributions to match the contribution limits, after 30 years of investing, you could have over $788,000 to help fund your retirement dreams.
If you are at least 50 years old, you may make larger contributions by taking advantage of a 'catch-up' provision allowed by the Economic Growth and Tax Relief Reconciliation Act of 2001 (the Act). Assuming you begin investing at age 50, by contributing an additional $1,000 after 2006, your 20-year total could be over $370,000 with a 30-year accumulation of over $978,000. However, contributions to a Traditional IRA must end when you reach age 70 1/2, but Roth IRA contributors have no age limit if there is earned income for the year a contribution is made.
This hypothetical chart is for illustrative purposes only and is not intended to represent or imply the actual performances of any specific investment and does not reflect any sales charges, fees, expenses or taxes. It is important to note that any investment involves risks that may result in the loss of principal and there is no guarantee that the strategies illustrated will produce positive investment results. Chart is based on annual contributions made at beginning of year and assumes a hypothetical average annual rate of return of 9%, without an increase to the maximum annual contribution other than the catch-up provision.
If you are currently making contributions to an IRA, consider increasing those contributions to take maximum advantage of the limits allowed by the Act. If you do not have an IRA (and are eligible to make contributions), you should consider opening an account as soon as possible. The sooner you begin making contributions, the sooner you can begin planning for your retirement.
Contact your registered State Farm® agent for information about available investment vehicles.
A 10 percent tax penalty may apply for withdrawals from tax-qualified products before age 59½.
State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 525 KB) .
AP2009/09/3320
