One of the aims of the new tax law is to get taxpayers to save more money for retirement. Here's a rundown of the recent changes and how they affect the amount of money you can put into your retirement account each year.
Individual retirement accounts/Roth IRAs
- The maximum contribution will increase to $3,000 in 2002 through 2004; $4,000 in 2005 through 2007; $5,000 in 2008. After 2008, contributions will be adjusted for inflation in $500 increments.
- For taxpayers 50 years of age or older, the maximum contribution limits will increase by an additional $500 each year in 2002 through 2005, and $1,000 in 2006 and later.
401(k) and 403(b) plans
- For 401(k) and 403(b) employer-sponsored retirement plans, the maximum deductible contribution will increase to $11,000 in 2002; $12,000 in 2003; $13,000 in 2004; $14,000 in 2005, and $15,000 in 2006 and later.
- For taxpayers 50 years and older, contribution limits will rise to $12,000 in 2002; $14,000 in 2003; $16,000 in 2004; $18,000 in 2005, and $20,000 in 2006 and later.
Other tax changes
- Beginning in 2002, it will take three years instead of five years to be fully vested in your employer-sponsored retirement plan.
- Employees who change jobs will be able to make rollovers between different types of employer-sponsored plans, or from a regular IRA to an employer plan.
- Beginning in 2003, employers will be authorized to set up IRA-type accounts for employees besides 401(k) and 403(b) plans. Currently, you must find a custodian on your own to set up an IRA.
- In 2006, employers will be able to offer Roth-type 401(k) or 403(b) plans in which contributions are not tax-deductible, but withdrawals can be made tax-free.