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Home > Library > Stable Times > Volume 5, Issue 4
The quarterly publication of the Stable Value Investment Association
Fourth Quarter 2001 • Volume 5 Issue 4
Tax Act Expands Contribution Limits to Retirement Plans
By Randy Myers
Workers can save more for retirement under terms of the Economic Growth and
Tax Relief Act of 2001, which was signed into law by President Bush earlier
this year.
Bill Sweetnam, benefits tax counsel in the Office of Tax Policy at the U.S.
Department of the Treasury, outlined the tax law's impact on retirement savings
during a speech at the SVIA Forum. Among the highlights of the legislation,
he discussed, were these:
- Elective deferral limits for 401(k), 403(b) and 457 plans increase to $11,000
for 2002, $12,000 for 2003, $13,000 in 2004, $14,000 in 2005 and $15,000 in
2006.
- Elective deferral limits for SIMPLE IRA's and SIMPLE 401(k)s increase to
$7,000 for 2002, $8,000 for 2003, $9,000 for 2004, and $10,000 for 2005.
- The annual contribution limit for Individual Retirement Accounts, which
had been $2,000, increases in a series of stages to a maximum of $5,000 by
2008.
- The section 415 limit, which governs the total amount that can be contributed
to retirement plans, increases to $40,000 from $35,000 in 2002.
- The compensation limit, used in calculating how much an employee can contribute
to a defined contribution retirement plan, increases to $200,000 in 2002 from
the current $170,000.
- Workers can now make after-tax contributions to Roth 401(k) and Roth 403(b)
plans, where available to them, and beginning in 2005, if their contributions
and earnings are withdrawn after the person retires, they will not be subjected
to federal income taxes. However, workers cannot roll balances from existing,
traditional 401(k) or 403(b) plans into the Roth versions.
- Workers can make "catch up" contributions to qualified retirement
plans such as 401(k) plans, as well as 403(b), 457, SIMPLE IRA and SIMPLE
401(k) plans, beginning in the year they turn 50. The cap on catch-up contributions
varies depending upon the type of plan. For qualified plans and 403(b) and
457 plans, the limit is $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000
in 2005 and $5,000 in 2006.
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