© St. Petersburg Times
published March 23, 2003
Workers still have time to stash money in an individual retirement account as a contribution for 2002, but early indications are that more than usual have decided to take a pass this year.
Those who are contributing are often setting aside less than the law allows. Contribution limits increased this year, from $2,000 to $3,000 for most workers, and $3,500 for those 50 or older.
St. Petersburg accountant Paul Bedinghaus said very few clients have been making their 2002 IRA contributions before they come to him for tax return preparation. Although they have until April 15, most have not planned to make a contribution at all, he said.
"I hate to see people skip a year because you can't make that up," he said. "They don't have confidence in the market. Even my wife keeps asking me why we are doing this."
Bedinghaus said he gives clients a pep talk, encouraging the risk-averse to invest their IRA money in a money-market fund or a bank certificate of deposit. He says the important thing is to set aside the money now; you can always change investments later.
March and April are the peak months for IRA contributions, so a late rush could still materialize, but some IRA custodians are reporting business was slower than usual in January and February.
T. Rowe Price, the mutual fund company, said IRA contributions were down 20 percent from the same months last year. Third Federal Savings said it sold $2-million less in IRA CDs than last year.
Workers who are not making contributions or who have scaled back offer a variety of reasons for their decisions.
Laura McKanna, a computer analyst for the city of St. Petersburg, said she decided it would be a better investment to use the money to pay down the principal on her mortgage.
"I just feel more comfortable right now paying off the mortgage," she said. McKanna said she expects to resume saving for retirement next year.
Gordon Koncelik of Largo said he would rather put his money into his 401(k) savings plan, where it not only nets him a tax deduction, but matching funds from his employer, Citigroup. He said he invests his savings in company stock.
Some say they directed savings into their children's accounts. Nationally, tax-advantaged 529 college savings plans took in $10-billion last year, more than doubling the assets in these plans.
Other workers say they just don't have the money.
"I was laid off and am just barely making ends meet," said Debbie Cencer of New Port Richey, a former purchasing manager.
If they have the money, low-income workers have the most incentive to contribute to retirement plans. Not only can they deduct their contributions, they also can qualify for a "saver's credit" of up to $1,000. The maximum credit, 50 percent of the contribution amount, applies to those with incomes below $15,000 if single or $30,000 if married. Some credit is available up to an income of $25,000 if single or $50,000 if married.
But many lower-income families say they cannot afford to save, while many higher-income families say they are not interested in making retirement plan contributions they cannot deduct.
If you participate in a retirement plan at work, the ability to deduct an IRA contribution is phased out for those with incomes of $34,000 to $44,000 if single or $54,000 to $64,000 if married filing jointly. If you don't participate in a retirement plan but your spouse does, the phaseout is at joint incomes of $150,000 to $160,000.
"H&R Block determines my maximum allowable deduction and I send in whatever amount it turns out to be," said Lisa Gillette of St. Petersburg. "Last year, it was only $350."
She said the stock market's performance has had no influence on her decision:
"I still look at investing for retirement the old-fashioned way -- leave the money in diversified instruments and let it grow," Gillette said. "I won't retire for 20-plus years and strongly believe that over time, my investments will gain nicely."
Those who cannot deduct their IRA contributions generally choose Roth IRAs. While there is no upfront tax deduction, the money can be withdrawn tax-free in retirement. The ability to make a Roth contribution is phased out for workers with incomes between $95,000 and $110,000 if single or between $150,000 and $160,000 if married filing jointly. Workers who make more than that can still contribute to a traditional, nondeductible IRA, but that option is not particularly popular.
Workers who are contributing to IRAs this year say they are thinking about the future.
"I maximize my contributions every year simply because I do not wish to be entirely dependent upon Social Security and my annuity-pension from work," said Sean Moberly of St. Petersburg, a mail clerk.
Although he put his 2002 Roth contribution into an aggressive technology fund last year, Moberly said he plans to take a more conservative approach with his 2003 contribution. He has plenty of company.
"People are being very conservative," T. Rowe Price spokesman Steve Norwitz said. "They're putting their money in bonds and more conservative value-oriented funds."
Of course, the objective is still to make a profit, a goal that has eluded many investors lately.
"I made a $3,500 contribution to a stock index fund and it is now worth about $2,300," lamented pharmacist Richard Hoffman of Inverness.
Mark Keister of Brooksville said he tries to ignore the current market and stay focused on the long term.
"It's not our only investment, so if it takes a hit now and then, we still feel we'll be all right."