The New Tax Laws -- Retirement Plans

See Tax Adjustments for 2008 for current numbers.

Working Hard for the Money

Contributions to your Work Retirement Plans

There are several types of deferred compensation plans and so different contribution limits:

401(k), 403(b), 457, 501(c)(18), salary reduction SEP

$11,000 in 2002, and increases $1,000 until 2006
After 2006, maximum of $15,000 adjusted in $500 increments for inflation
Three years prior to retirement, contribution limit doubles whatever is current
(For 457 plans, the compensation limit of 33 1/3% increases to 100% in 2002)

Simple Plan

$7,000 in 2002, and increases $1,000 until 2005
After 2005, maximum of $10,000 adjusted in $500 increments for inflation

For these retirement plans, taxpayers age 50 and older can make additional 'catch-up contributions' as follows:

2002: $1,000 (additional)
2003: $2,000 (additional, etc.)
(2004-2006: The catch-up increases annually by $1,000 until an extra $5,000 allowed in 2006)
Then, catch-up contribution amounts in increments of $500 for adjustments for inflation.

For Simple IRA's and Simple 401(k)'s the catch-up is 1/2 these amounts.

(Are you memorizing all this??)

What it means:	For most people, we're talking 401(k), or 403(b) annuities. You can put more into your deferred comp plan each year, and the plans have more flexibility in some of the rules. Taxpayers age 50 and older can contribute more, and don't forget the possibility of also getting a credit for your contribution (See IRA page).
Not sure what type of retirement plan you have? Ask your employer. Tell 'em Taxaway sent ya.

When it comes to retirement plans and tax law, you'd rather learn how to make sausage. Here are some other plans and a few extra technicalities. You can skip down to the bottom of the page if you have to urge to buy some flowers. If not, you must read on.

Defined Contribution Plans

The maximum contribution limits on this plan type increased from $35,000 to $40,000 for 2002, then as increments of $1,000 (instead of $5,000) starting in 2003 if necessary to be adjusted for inflation.

The other restriction is as a percentage of compensation: from 25% was increased to 100% in 2002. The limit of compensation used for the percentage figure has been increased from $170,000 to $200,000 in 2002; thereafter increments of $5,000 for adjustments for inflation. (For both this plan type and the next)

Defined Benefit Plans

The limit on the plan's benefit has been increased from $140,000 to $160,000 in 2002; reduced if the pension begins before age 62, or increased if the pension begins after age 65. Increments are $5,000 rather than $10,000 for adjustments for inflation as of 2003.

Hardship Withdrawals: After getting one, instead of having to wait 12 months to make more contributions again, the waiting period will be 6 months as of 2002.
Make it a Roth: As of 2006, qualified plans and 403(b) annuities can be set up as Roths, with distributions treated same as a qualified Roth distribution (tax-free) except for first-time home purchase.
As of 2002, rollovers are allowed between any qualified plans, 403(b) annuities or 457 (gov't employees); also rollovers from IRA's to these plans. As usual, rollovers should be completed within 60 days of the original distribution, although there is mention of the kindlier and gentler (or is it the backlogged and antiquated?) IRS allowing some hardship excuses if late.

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