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Does it vary each year like a 401(k) does?

It does now.

Tax Year Limit Limit
-------- < 50 50&older
----- --------
 
2004 3,000 3,500
2005 4,000 4,500
2006 4,000 5,000
2007 4,000 5,000
2008 5,000 6,000

After 2008, the amount will vary based on inflation in steps of $500.

The "catch up" (50 & older) means one would have to be 50 (or older) by December 31 of that tax year. So, if one turns 50 by December 31, 2004, one can contribute a maximum of 3,500 (and do so even before one is technically 50, just as long as one will be 50 by December 31, 2004).
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