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My rant on IRA contribution caps

December 27th, 2006 at 03:04 am

I already commented on this post in Monkey Mama's blog but I'd love to hear your thoughts on the subject. Am I the only shmoe who has worked for small/family-owned type companies with absolutely no 401(k) plan - stuck with having to put away a measly $4,000 maximum a year toward retirement?

Does this seem wrong to anyone else out there? I am already penalized because I work for a small company, probably struggling to make a decent wage and on top of that, the government tells me that I can not save more than $4000/year in the only retirement vehicle available to me!!! This steams me.

I can *almost* understand making a cap on IRA contributions if you already have a 401(k), but to tell people whose only retirement account is a Roth IRA that they're gonna have to suck it up and live on those $4,000/yr contributions come retirement age, well what might be the incentive to work for a small business at all...unless you happen to own it (then you can open a SIMPLE IRA or a SEP IRA and save more). But, if you are the jackass working for him you are completely screwed.

...or am I missing something? ???

8 Responses to “My rant on IRA contribution caps”

  1. Broken Arrow Says:

    Good question!

    I'm not sure what the answer is, but my guess is that it has something to do with the fact with 401ks, the government is trying to coax businesses to help contribute to your individual retirement, rather than just coaxing individuals for their own retirements.

    Hopefully, someone will have the answer and we'll see if I'm close at all. Big Grin

  2. baselle Says:

    You're not really missing anything.

    However, remember that the cap only caps contributions $ to government sponsored tax-deferred or tax-sheltered accounts. The government isn't stopping you from saving money. You simply save it into accounts where a profit is considered taxable income; you then learn advanced tricks about capital gains (make sure they are long term - they occur only when you sell after you hold a stock for a year), how to sell bad stocks to compensate for winners, learn about I-bonds (tax deferred), municipal bonds, etc. You're not completely screwed, just mildly screwed.

  3. mariannej Says:

    Baselle,
    Okay but what's the point of these arbitrary caps? Why is someone who is already making more money and getting money contributed to their retirement from their employer able to put $15k into a 401(k) PLUS max out an IRA while the person making less money working for a small business with no employer help toward retirement only allowed to contribute 20% of that in these gov't plans??? These laws are making life even more difficult/complicated for those in the middle/lower class. This needs to be rectified IMO.

  4. Ima saver Says:

    I opened my IRA back in the early 80's and we could only contribute $2000 a year. Now, more than 20 years later, I only have $70,000 in my IRA. Not enough to ever retire on.

  5. monkeymama Says:

    I was going to say that until around 2000 the max was $2k for a LONG time. Now wasn't that ridiculous??????

    & BA makes the point - the reason is they are encouraging businesses to help employees save for retirement. Many businesses don't see the point though, so it is a tossup many times where 401k is offered or not.

    When we are in a large savings position again we will be looking into tax-friendly mutual funds. Not much else you can do.

    I would say write congress, but frankly they don't have the money for any new tax breaks right now. But if you feel strongly make your voice heard!

  6. jersey jen Says:

    just like mentioned before, there is always non-deferred or non-deductible account.

  7. mairgrif Says:

    I agree, if that's the only place you can contribute, $4000 is not a lot. However, there are more than just 401k's for businesses. Many small businesses can use SIMPLE IRAs, and other tax deferred options, which nowadays are low cost to the employer to set up, and allow higher contributions. If you are working in a place w/ no retirement acct set up, do some research and approach the owner, or whomever would make the decisions. If you get nowhere w/ them, talk to your acct about options for increasing your tax-deferred retirement contributions. GL

    Mair

  8. mariannej Says:

    Thanks Mair,

    I thought SIMPLE IRA's were only for the employer's use. I'll have to do more research. I am heading into a career overflowing with small business owners, so I have a feeling this will continue to be a problem for me. I am definitely going to have to do my homework. Smile

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