New
Rules Allow Additional Retirement Plan Contributions
Certain employees can save even more for retirement
Among the many
important new pension reform provisions of the Economic Growth and Tax
Relief Reconciliation Act of 2001 is the catch-up contribution provision.
This change provides that, effective for plan years starting on or after
January 1, 2002, retirement plans may permit participants age 50 and over
to make additional “catch-up”
contributions. The additional contribution will be $1,000 in 2002,
then increased each year by $1,000 until reaching $5,000 in 2006. Note,
however, employers are not required to permit catch-up contributions to
retirement plans.
The catch-up provision applies to all retirement plans including
traditional and Roth IRAs, SIMPLE IRAs, §401(k), §403(b) and §457 plans,
and is effective for 2002 and future years. Workers age 50 and older can
make catch-up contributions in addition to their regular contributions. A
catch-up contribution is any elective deferral made by an eligible
participant that is in excess of the statutory limit. For 2002, a worker
is eligible to contribute $11,000 to these plans. Additionally, workers
age 50 and older can make a $1,000 catch-up for a total contribution of
$12,000 for the year. For 2003, workers participating in 401(k) and 403(b)
plans are eligible to contribute $12,000 to their plans. Workers age 50
and older can make an additional $2,000 catch-up contribution for a total
contribution of $14,000.
New IRA Deduction & Contribution Limits
The maximum regular
IRA contribution in 2002 is $3,000, which must be included in your tax
preparation -- whether or not the IRA contribution is tax deductible.. Workers age 50 and older can
contribute an extra $500. Contribution limits for 2003 and 2004 will
remain at $3,000 plus the $500 catch-up. Traditional and Roth IRAs are not
qualified plans, and there are no restrictions on workers 50 and older
making catch-up contributions.
Workers
participating in a SIMPLE IRA can contribute $7,000 in 2002. Workers age
50 and older can make an additional $500 catch-up contribution. In 2003,
the contribution limit to a SIMPLE IRA increases to $8,000, and workers
age 50 and older will be able to make a $1,000 catch-up contribution.
