Q. What are the new contribution limits for IRAs, 401(k)s, and other
retirement plans?
A.
The Economic Growth and Tax Relief Reconciliation Act of 2001
enacted a number of changes to the rules regarding IRAs, 401(k)s,
403(b)s, and other retirement plans. One of the areas affected are
contribution limits. However, it is important to remember that a
number of the changes are being phased in between 2002 and 2010.
Also, the Act does not apply to tax years after 2010. It will be up
to Congress to renew or change the law; they may even do so well
before 2010.
Traditional and Roth IRAs
Contribution limits for Traditional and Roth IRAs will rise from
$2000 to $5,000 between 2002 and 2008. After 2008, the limit may be
adjusted annually for inflation.
| Tax Year |
Limit |
| 2002-2004 |
$3,000 |
| 2005-2006 |
$4,000 |
| 2008 |
$5,000 |
| 2009-2010 |
Indexed to Inflation |
401(k), 403(b), and 457 Plans
These limits are on pretax contributions to certain employer-
sponsored retirement plans. Remember that employers have the option
of imposing lower limits than the government maximums, which will
rise to $15,000 by 2006.
| Tax Year |
Limit |
| 2002 |
$11,000 |
| 2003 |
$12,000 |
| 2004 |
$13,000 |
| 2005 |
$14,000 |
| 2006 |
$15,000 |
| 2007-2010 |
Indexed to Inflation |
Catch-Up Contributions
"Catch-up" contributions are for people aged 50 and over, in order
to balance out the advantages of increased contributions for younger
individuals. To be eligible for a catch-up contribution, an
individual must first make the maximum regular contribution to his or
her IRA or employer-sponsored plan.
| Tax Year |
Catch-Up Contribution |
| 2002-2005 |
$500 |
| 2006-2010 |
$1000 |
Catch-up contributions to Traditional IRAs may be tax deductible if
the taxpayer meets certain income restrictions.
SIMPLE
A SIMPLE plan is a retirement planning vehicle for small business
owners and employees. There is a catch-up contribution available for
SIMPLE plans that will be gradually increased to $2,500 by 2006, and
then indexed to inflation for 2007 through 2010.
| Tax Year |
Limit |
| 2002 |
$7,000 |
| 2003 |
$8,000 |
| 2004 |
$9,000 |
| 2005 |
$10,000 |
| 2006 |
Indexed to inflation |
There are many other changes made by the Economic Growth and Tax
Relief Reconciliation Act of 2001, the nuances of which may affect
your eligibility for various tax benefits. For instance, the tax-deductible
portion of the contribution limits may be reduced
depending upon your income. The advice of a qualified professional
should always be sought before implementing any tax or financial
planning strategy.
I’m ready to get started with an IRA,