Making contributions to retirement plans often “contributes” to the stress of financial and tax planning.  Let us help get you “up to date” with the changes affecting retirement planning as a result of the Economic Growth and Tax Relief Reconciliation Act of 2001 and regulations issued in 2002.

There are a few general rules and limitations that apply to retirement contributions.  These include, among others, contribution limits, deadlines, and tax consequences.

For 2002 through 2004, the maximum combined contribution to a traditional IRA and Roth IRA is generally limited to $3,000.  The elective deferral limit for 401(k) plans, 403(b) annuities, 457 plans and salary reduction SEPs is generally $11,000.  For SIMPLE plans, the salary reduction limit is $7,000.  

Individuals who are at least 50 years of age by the end of the tax year are also permitted to make “catch-up” contributions to IRAs (both traditional and Roth), as well as to a variety of employer-sponsored defined contribution plans (e.g., 401(k), SEP, SIMPLE).  The maximum amount of the catch-up contributions to IRAs (traditional or Roth) is $500 for 2002 through 2005.  The maximum catch-up contribution to a 401(k) plan is $1,000 for 2002 ($2,000 for 2003).  The maximum catch-up contribution to a SIMPLE plan is $500 for 2002 ($1,000 for 2003).

It is also important to remember that if you didn’t reach the maximum contribution level by the end of the year, you are not out of luck.  Individuals have until the due date of their tax returns to make contributions to their traditional and Roth IRAs (e.g., April 15).  This does not include filing extensions.  If the contribution is made by the due date, it will be treated as having been made on the last day of the tax year for which the return is filed.  In the case of traditional IRA’s, a deduction may be claimed for a contribution even though the contribution had not been made when the return is filed, provided that it is in fact made before the due date for filing the return.  

New life expectancy tables have also been issued that will generally provide for smaller annual distributions.  This will allow individuals to keep more funds in their tax-deferred plans.