By now, you've probably heard about the Tax Relief Act of 2001. Yes, the scope of the new legislation is enormous. Yes, it could provide you with tax savings and new financial planning opportunities. But, in light of these changes, what actions should you be taking now?

As a farm business owner, it is easy for extra income to be swallowed back into the farming operation. Something always needs to be repaired or replaced. However, it is important that you invest now for the education of your children, your retirement, and passing the farming operation onto the next generation. Here are a few things to consider and some suggestions that may help make the new tax plan work to your advantage.

Tax planning

Federal income tax rates are reduced for all taxpayers retroactively to Jan. 1, 2001. And, beginning in 2005, married couples will finally get some relief from the "marriage penalty."

What will you do with this extra cash in your paycheck? Because a lower tax structure is being phased in, now is the time to meet with a financial consultant to discuss your investment portfolio and tax-savings strategies. Determining what effect the new income tax structure might have on your finances now could save you substantial dollars in the future.

Education planning

Education IRA annual contribution limits increase from $500 per child to $2,000 annual maximum per child, starting in 2002. If you have younger children, consider this option first.

In addition, these funds may now be used for elementary and secondary education expenses. You can take tax-free distributions for the purchase of any computer technology or equipment, including educational software and Internet access services. You also can use the distributions for uniforms, transportation, extended day programs, academic tutoring, books and supplies in addition to tuition, room and board at public, private or religious schools offering elementary or secondary education. Any funds remaining in the account can be applied to college without taxes or penalties.

So, if you've never considered an Education IRA, now may be the time to act.

Retirement planning

If you are a Baby Boomer age 50 or older, pay particular attention to the new maximum annual contribution limits of Traditional or Roth IRAs and 401(k) plans. Not only are contributions increased, you may make additional "catch-up" contributions - $500 for 2002 through 2005 to a Traditional or a Roth IRA, and $1,000 extra in 2002 to a 401(k).

In addition, you may catch-up contributions to both IRAs and salary deferral plans in the same year. Taking advantage of these higher limits - particularly if you only recently began to save - could provide a substantial boost to your retirement savings, even if contributions are non-deductible.

Estate planning

The amount of assets you will be permitted to pass to a beneficiary without incurring estate tax liability increases to $1 million in 2002 (gradually increasing to $3.5 million in 2009).

And, federal estate and generation skipping taxes will be repealed in 2010. Between now and then, take full advantage of the phase-in changes. As these laws are extremely complex, you should consult with your tax and legal advisors.

Review legal documents such as wills, trust, tilting of assets and your power of attorney to determine how these changes affect your individual situation. A little estate planning now could give your loved ones piece of mind and help transfer assets to your designated beneficiaries in a tax-efficient manner.

David Chlus is a first vice president of investments with Smith Barney, Inc., in Utica, N.Y., and partner in a 90-cow dairy.