Contribute early to your retirement savings

Have you made your 2002 IRA contribution yet?  As a general rule, you should make your contribution as early in the year as you can afford it.  By doing so, you maximize the time for your earnings to grow tax-deferred.

The same rule applies to salary deferrals into your 401(k) plan or SIMPLE plan at work.  If your cash flow permits, contribute at the maximum rate your plan allows.  Stop salary deductions when you reach the contribution limit.  If you are fortunate enough to hit the contribution limit before year-end, you'll experience a nice increase in your take-home pay just in time for year-end holiday expenses.

There's also good news if you're 50 or older.  Thanks to last year's tax law, you can now make additional "catch-up" contributions to your IRA and your employer's retirement plan.  These catch-up contributions ($500 for an IRA or SIMPLE plan, $1,000 for a 401(k) plan) are over and above the normal contribution limit for these plans.

There's more good news if this is the year you reach age 50 and you participate in a retirement plan.  A new tax law makes it clear that you can make catch-up contributions at any time during the year you turn 50.  You don't have to wait until after your birthday to increase your IRA contributions or your retirement contributions at work.

Remember, when it comes to IRA and retirement plan contributions, it's the early bird who maximizes tax-deferred earnings.