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New Rules of Catching Up for Worried Retirees

NEW YORK ( TheStreet) -- Back in March, we pointed to a Charles Schwab (SCHW) study that says near-retirees are significantly short on their retirement savings campaigns. After age 67, Schwab says, Americans won't have nearly enough money to make it to age 86 -- the age U.S. workers estimate they'll live to in retirement.

Confirmation comes from TD Ameritrade (AMTD), and it puts a firmer number on the retirement shortfall U.S. workers are facing.

According to the Omaha, Neb., investment firm, baby boomers have saved $275,000 on average for their post-employment years, but estimate they'll need $750,000 "to live comfortably."

As a result, boomers need to start playing "catch up" right away via individual retirement accounts. Such plans allow Americans over the age of 50 to make "extra" contributions to their IRA or to their 401(k) plans at work -- the contributions are above and beyond the contributions Americans can legally make on an annual basis to their retirement plans on a tax-advantaged basis.

Financial consumers have until April 15 to make catch-up contributions to their retirement portfolios.

TD Ameritrade breaks down the maximum account limits as follows:

For 2012:

  • IRA contribution limits are $5,000 with an additional $1,000 catch-up contribution, for a total contribution of $6,000.

For 2013:
  • 401(k) contribution limits are $17,500 with an additional $5,500 catch-up contribution, for a total contribution of $23,000.
  • IRA contribution limits are $5,500 with an additional $1,000 catch-up contribution, for a total contribution of $6,500.

If you can't manage a catch-up contribution for 2012, start off 2013 by stashing your tax refund check into an IRA or a 401(k) plan. Chances are decent you'll get a tax refund, as TD Ameritrade estimates that 47% of Americans will get a check or automatic tax deposit from Uncle Sam this year.

The key is not spending the money, but redirecting it immediately to their retirement plans, the firm says.

"Baby boomers should consider different opportunities, like catch-up contributions, that might make sense for their retirement investing plans," said Lule Demmissie, managing director for retirement at TD Ameritrade. "By not taking advantage of these catch-up contributions, they could potentially miss out on thousands, perhaps even hundreds of thousands of dollars that could be available in retirement."

The impact from taking advantage of catch-up IRAs can be impressive. If you make that maximum $6,500 contribution to an IRA every year from age 50 to age 70, you can earn an extra $225,675 for retirement, given a 5% return on investment, TD Ameritrade says.

That's a lot of cheese, and reason enough for playing catch-up with your retirement savings plan. But don't put it off. Every year you wait makes it all that harder to get the maximum amount you can earn after age 50.

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