Myth Buster: Too Late to Save

MYTH: I’m approaching retirement, so my savings years are over.

FACTS: Not so. In fact, these may be the years when you can put away the most.

As long as you continue earning taxable compensation from the company that sponsors your 401(k) plan and you meet any service requirements, you can continue contributing to the plan. And as long as you continue earning taxable compensation, you can continue contributing to a Roth IRA, though you’ll have to stop contributing to a traditional IRA at age 70 years 6 months.

To encourage retirement savings late in your career, the federal government has created 401(k) and IRA catch-up provisions that allow workers age 50-plus to save more. If you are 50 or older before Jan. 1, 2009, you can increase your maximum 2008 401(k) contribution from $15,500 to $20,500 and your maximum IRA contribution from $5,000 to $6,000.

One caveat: Your annual contribution to an IRA or 401(k) cannot exceed your annual taxable compensation—wages, salaries, tips, commissions, etc.