Santa visits retirement plans . . . for a while.
There are many generous provisions relating to qualified retirement plans in
the new
Economic Growth and Tax Relief Reconciliation Act of 2001
tax law. Here are some examples.
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The maximum contribution for IRAs will be increased
from $2,000 to:
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$3,000 for 2002, 2003 and 2004
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$4,000 for 2005, 2006 and 2007;
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$5,000 for 2008
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and thereafter indexed for inflation.
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Individuals who are age 50 by the end of the taxable year will be able to
contribute an additional
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$500 to an IRA for 2002 through 2005
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$1,000 for 2006 and thereafter.
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The 25% of compensation limit for defined contribution plans will be increased
to 100% of compensation, effective for years beginning after December 31, 2001.
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The $35,000 contribution limit for 2001 for defined contribution plans will be
increased to $40,000, effective for years beginning after December 31, 2001.
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The maximum compensation limit for computing contributions to defined
contribution plans will be increased from $170,000 for 2001 to $200,000,
indexed for inflation for 2002 and thereafter.
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The maximum percentage of compensation limit for contributions to a profit
sharing plan or a simplified employee pension plan (SEP) will be increased from
15% to 25%, effective for years after 2001. (With these increased limits, some
employers will elect to terminate their money-purchase pension plans.)
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The maximum contribution for 401(k) plans will increase to
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$11,000 for 2002
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$12,000 for 2003
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$13,000 for 2004
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$14,000 for 2005
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$15,000 for 2006
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and thereafter indexed for inflation.
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Effective for years after 2001, deferred employee contributions to a 401(k)
plan, SARSEP, SIMPLE or a Section 403(b) deferred annuity will be disregarded
when computing the maximum contribution to other retirement plans.
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The maximum contribution to SIMPLE plans will increase to
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$7,000 for 2002,
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$8,000 for 2003,
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$9,000 for 2004
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$10,000 for 2005
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and thereafter indexed for inflation.
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The maximum compensation limit for defined benefit plans will increase from
$140,000 for 2001 to $160,000 for years after 2001, indexed for inflation.
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Effective for tax years beginning after 2005, employers may enable employees to
designate contributions to 401(k) plans and 403(b) plans as non-deductible Roth
contributions, subject to the same limitations as contributions to Roth IRA
accounts.
This is not a complete list. Qualified retirement planning profesionals will be
studying and interpreting the effects and opportunites of these new rules for
some time to come.
All information provided is
general in nature and intended to create awareness, not to
address the specific circumstances or concerns of any individual
or entity. Although we try to provide correct and timely
information, we cannot guarantee the accuracy of any information
or that such information will continue to be accurate in the
future due to the changing nature of the tax laws. Before acting
on any of the information provided here, you should consult with
a professional advisor who knows all of the unique facts and
circumstances pertinent to your particular situation.