What Has Changed:

The Act raises the long-standing $2,000 annual limit on IRA contributions, starting in 2002, and allows additional catch-up contributions for individuals age 50 and older, as shown in the accompanying table. Note that the contribution limit is a cap on annual contributions to all of an individual's IRAs, but does not apply to rollover contributions.

The Impact:

These changes will help many individuals build larger traditionaf and Roth IRA balances. Unfortunately, income-based restrictions still apply to tax-deductible IRA contributions when an individual and/or a spouse is eligible to participate in an employer-sponsored retirement plan. The ability to contribute to a Roth IRA is also limited for higher- income individuals. Thus, some individuals may have a difficult time taking advantage of the expanded opportunities to invest in these tax-saving accounts.

Strategies To Consider:

If it has been a while since you investigated the possibility of contributing to an IRA, you may want to do so now. And, even if you are limited by your income, you still have planning opportunities. For example, your child or grandchild can have a traditional or Roth IRA if he or she has taxable earnings from work. The potential for compound growth over many years is especially powerful when savings are invested in a tax-favored account such as an IRA. Consider giving an eligible young family member the money needed to fund an IRA (or other retirement plan account) of his or her own.