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Put every penny you can
into retirement -- it will
pay off

HOW can you build resources for a comfortable retirement? One of the very best moves you can make is to contribute the maximum to your 401(k) and IRA. And here's some good news: That maximum has been increased for 2005 -- so you've now got an even better chance to accelerate your retirement savings.

Higher contributions

In 2005, you can put in up to $14,000 to your 401(k), up from $13,000 in 2004. And, if you're 50 or over, you can add up to $4,000 in "catch-up" contributions. (These same limits apply to 457(b) plans, for state or local government employees, and to 403(b) plans, for employees of schools, religious organizations or other nonprofit groups.)

You also can put up to $4,000 in your traditional or Roth IRA, up from $3,000 in 2004. If you're 50 or over, you can add another $500.

At first glance, you might not think these increases are such a big deal. But, over time, they can really add up. Suppose, for example, that an investor put in the maximum of $14,000 every year to his or her 401(k), 457(b) or 403(b) plan, and you earned a hypothetical 7 percent rate of return. After 25 years, that account would have accumulated about $68,000 more than it would have if the investor had only put in the old maximum of $13,000 per year, and earned the same 7 percent. And if he or she contributed the new maximum of $4,000 every year to an IRA, again earning the same hypothetical 7 percent rate of return, he or she would end up, after 25 years, with about $67,000 more than if the previous maximum of $3,000 per year (earning 7 percent) was invested.

Furthermore, the above figures don't take into account future increases in contribution limits or "catch-up" contributions.

(Keep in mind that you will have to pay taxes on your 401(k), 457(b), 403(b) and traditional IRA when you start taking withdrawals. A Roth IRA, however, grows tax-free, provided you meet certain conditions.)

Can you afford to 'max out?'

If you're like most people, you have plenty of demands on your income, so you may not think you can afford to "max out" on your 401(k) and IRA.

That may, in fact, be the case -- but do whatever you can. Whenever you get a raise, consider increasing your 401(k) contribution. You may also be able to set aside more money for your 401(k) if you can find a way to cut down on some of your daily expenditures.

As for your IRA, try to put in a fixed amount each month, rather than scramble to make the entire contribution at one time. You'd probably find it quite hard to come up with $4,000 at one time -- but if you spread it out over 15 months (you have until April 15 of one year to make IRA contributions for the preceding year), you only have to find about $266 a month.

Reach for the limit

By hitting the contribution limit on your 401(k) and IRA, you can help yourself achieve a retirement lifestyle without limits. So put away as much as you can today -- and give yourself the opportunity to reap the rewards tomorrow.