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NEW YEAR, NEW CHANCE TO SAVE

January 16, 2004

Some of us spend our lives up against deadlines. We file our tax returns on April 15 (OK, October 15), we renew our drivers licenses 60 days after our birthday, and so on. It's not healthy, but it happens.

The new year is a great time to beat the deadline habit with your IRS savings. If you start putting money in your IRA now, your earnings start to build up tax-free right away; if you waid until April 15, 2005 to make your 2004 IRA contribution, you lose 15 months of tax savings.

START WITH THE 401(k)

If you participate in an employer 401(k), you should start your savings there, at least to the amount that the employer will match.

After maxing out your 401(k), you should maximize your Roth IRA participation, if you are eligible. Eligibility phases out for joint filers with adjusted gross incomes over $150,000 and for single taxpayers with AGI over $95,000. The maximum annual contribution is $3,000 ($3,500 if you are 50 or older).

If you don't qualify for a Roth IRA, a traditional IRA isn't a bad deal, even if it's non-deductible. For taxpayers coverd by a qualified plan at work, deductibility phases out for incomes over $65,000 ($45,000 for single taxpayers).

Once you have fully used your 401(k) and IRA, deferred annuity products may offer worthwhile tax savings. As they are generally more costly that the 401(k) and IRA arrangements, annuities should usually be used only after the 401(k) and IRA plans have been funded for the year.

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