| As an IRA
contributor |
|
The current $2,000 annual contribution limit for IRAs has
not changed since 1981 and has never been indexed for
inflation. If the IRA limit had been adjusted for inflation
over the years, it would currently stand at approximately
$5,000.1 Going forward, contribution limits for
both Traditional and Roth IRAs will increase from $2,000 to
$5,000 on a phased-in basis as follows: |
|
| 2002-2004 |
$3,000 |
| 2005-2007 |
$4,000 |
| 2008 |
$5,000 |
|
|
|
|
| After 2008, the
limit would be adjusted for inflation in $500 increments. |
|
| In the past, anyone
who skipped an IRA contribution in a given year – or made
a partial contribution – had no way to make up for the
missed contribution. Starting in 2002, workers age 50 and
older (as of the end of the year) would be able to make
increased contributions on a phased-in basis as follows: |
|
| 2002-2005 |
$500 |
| 2006
and thereafter |
$1,000 |
|
|
|
| For
participants in an employer-sponsored retirement plan or
small business owners |
|
| The new legislation
increases small business retirement plan contribution
limits and allows workers to save more each year for
retirement. The retirement savings package contains a
substantial number of provisions, of which only a sample are
mentioned below. |
|
| The new legislation
substantially increases the limits for many types of
employer-sponsored retirement plans. In addition, the
current annual additions limit on contributions to defined
contributions plans (25% of a given worker's compensation)
is repealed, allowing workers to contribute up to 100% of
their compensation to defined contribution plans, subject to
a new increased $40,000 maximum and other applicable limits
discussed below. |
|
| Subject to certain
limits on the sum of employer and employee contributions,
the limit on employee salary-reduction contributions will
increase from $10,500 to $15,000 on a phased-in basis as
follows: |
|
| 2002 |
$11,000 |
| 2003 |
$12,000 |
| 2004 |
$13,000 |
| 2005 |
$14,000 |
| 2006 |
$15,000 |
|
|
 |
| After 2006,
adjustments for inflation will increase in $500 increments
thereafter. |
|
SIMPLE-IRAs
The limit will increase the maximum annual elective
deferrals from the current $6,500 limit on a phased-in basis
as follows. |
|
| 2002 |
$7,000 |
| 2003 |
$8,000 |
| 2004 |
$9,000 |
| 2005 |
$10,000 |
|
|
 |
|
| After 2005, the
limit would be adjusted for inflation in $500 increments. |
|
Beginning in 2002, workers age 50 and older (as of the end
of the taxable year) will be allowed to make an additional
contribution via salary reduction (elective deferral) to a
401(k), 403(b), 457 or SIMPLE-IRA plan. (The catch-up
contributions would not be subject to nondiscrimination
rules, except that plans would have to allow all eligible
individuals to participate in the catch-up in the same
manner.) |
|
| Under the proposal,
the additional amount of elective contributions that could
be made by an eligible individual participating in such a
plan would be the lesser of (1) the applicable dollar
amount as described below, or (2) the participant's
compensation for the year reduced by any other elective
deferrals of the participant for the year. |
|
| |
| 2002 |
$1,000 |
$500 |
| 2003 |
$2,000 |
$1,000 |
| 2004 |
$3,000 |
$1,500 |
| 2005 |
$4,000 |
$2,000 |
| 2006 |
$5,000 |
$2,500 |
|
|
|
| In 2007, the limit
would be indexed for inflation (in $500 increments). |
|
| Catch-up
contributions made under the proposal would not be subject
to other contribution limits and would not be taken into
account in applying other contribution limits. |
|
| The new legislation
makes it even easier to manage one's retirement savings by
allowing for the consolidation of various retirement account
balances. Beginning in 2002, 401(k) (and other qualified
plans), 403(b), and 457 plan balances can be rolled into
each other, so long as the plan permits such rollovers and
is able to separately account for the plan assets, or they
can be rolled into an IRA. Also beginning in 2002, after-tax
employee contributions can be included in an eligible
rollover distribution to a qualified plan or IRA, although
separate tax reporting will be required. This means that
job-changers may no longer need to leave dormant accounts
with their previous employers. In addition, pre-tax IRA
balances will be able to be rolled into a qualified, 403(b),
or 457 plan if the applicable plan will allow. |
|
| The maximum
compensation amount on which a contribution can be based
will increase from $170,000 to $200,000 beginning in 2002.
Thereafter, this amount will be indexed for inflation in
$5,000 increments. |
|
| The existing $35,000
annual contribution limit will be increased to $40,000
beginning in 2002, and then adjusted for inflation in $1,000
increments. |
|
| Please note, this
new legislation contains a "sunset" provision,
which means that in the event that no further legislation
extends or otherwise amends these provisions, the affected
provisions will revert to today's current law in 2010. |
|
| What do I do
next?
|
- Help To Keep Your Life In Balance
