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On The Money

Posted: Thursday, October 05, 2000

There are a variety of retirement savings options for small savers. Congress currently is considering legislation to raise the contribution limits on some of the accounts.

401(k) Plans -- An employee contributes pretax dollars from earnings, and employers often ''match'' a portion of the contributions. Earnings grow tax-deferred. Maximum contribution is 15 percent of earnings, up to $10,500 a year. Congress is considering raising the limit to $15,000 a year.

403(b) Plans -- Similar to 401(k) plans, but restricted to employees of colleges, universities and other nonprofit institutions.

457 Plans -- Again, similar to 401(k) plans, but available to employees of state and municipal government. You can set aside up to 25 percent of gross pay to a maximum of $8,000 a year. There generally isn't a matching contribution.

Individual Retirement Accounts, or IRAs -- Created in 1974, these tax-deferred accounts let you to contribute up to $2,000 a year in pretax dollars, $4,000 for a married couple. Taxes are deferred until earnings are withdrawn, generally after retirement when you're in a lower tax bracket. Withdrawals before age 59 1/2 are subject to a penalty, except for disability, to pay for education or to buy a first house.

Roth IRAs -- Available for the past three years, these accounts must be funded with after-tax dollars up to $2,000 a year. A single person must have less than $95,000 in adjusted gross income to set up a Roth, while a couple must be below $150,000. Savings grow tax-free and remain tax-free at withdrawal after age 59 1/2. Early withdrawals are allowed for education and first-home purchases if the account has been open at least five years. Congress is considering raising the limit on IRA contributions to $5,000.



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