Benefits January 3, 2002

Participants Plan Higher Contributions in 2002

January 3, 2002 (PLANSPONSOR.com) - Almost three-quarters of American savers with a workplace retirement plan will likely increase their contributions in 2002 following the passage of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), according to a Fidelity Investments Survey.
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In addition, some 63% of those age 50 or older that said they would likely contribute more – thanks to the catch up provision.

The survey revealed that while most Americans know about the recent tax cuts, 85% are unaware of savings opportunities now available following the passage of EGTRRA.

However, once the retirement and college savings opportunities were explained, 84% of those surveyed agreed that the new legislation would provide more opportunities to save for retirement and college, in fact:

  • nine out of tem said that federal income tax-free qualified withdrawals from 529 College Savings Plans would help Americans save,
  • close to 90% said the ability to save $3,000 in an IRA this tax year as opposed to the previous limit of $2,000 would help those saving for retirement,
  • while 85% agreed that the “catch-up” provision, allowing those age 50 or older to contribute up to $3,500 to an IRA will also help

In addition, Fidelity found that:

  • almost 85% of the sample agreed that increased contribution limits to workplace retirement plans would help Americans better save for retirement, 
  • 88% felt that the catch-up contribution for workers 50 or older also represented a significant savings opportunity, and
  • the same percentage reported that increased portability of workplace retirement plans would do the same

Upping The Ante

Interestingly, the majority said they personally would save more for retirement and college this year as a result of the changes, and that the additional savings would come from:

· a salary increase,
· a second income or
· a decrease in living expenses such as entertainment

On hearing that qualified withdrawals from 529 College Savings Plans are now federal income tax-free, 65% said they would likely open an account this year.

The survey also revealed that those who invest in IRAs were most familiar with the new savings provisions – but only 10% knew about the increased IRA contribution limits.

Once the new provisions were explained, 71% of IRA holders said they were likely to increase their 2002 IRA contributions. Of these,

  • 45% said they were likely to contribute the full $3,000 now allowed by law
  • a little over half of those age 50 or older plan to take advantage of the new catch-up provision by contributing the maximum of $3,500

The survey comprised telephone interviews with 1,210 adults who have an IRA, a workplace retirement plan or who are saving for a child’s college education, late last year.

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