Newsletter for June 2002

New federal contribution limits for retirement plans continue to be a hot and sometimes confusing topic. This month's featured question provides focused answers in a series of short, simple tables. The Article Briefings highlight recent retirement news, including pension violations, social security debates, the appeal of one-person 401(k)s, and AARP's litigation against major drug companies. For June's Resource Link, we've selected the Eldercare Network, which provides a wealth of online resources for the many people who are now caregivers for the elder members of their families.

Featured Question of the Month
New Contribution Limits for IRAs, 401(k)s, and Other Retirement Plans

Article Briefings
Penalties Sought in Pension Violations
Fusillade in Social Security War
One-Person 401(k)s Make a Lot of Sense for Self-Employed
AARP Joins Three Lawsuits Against Large Drug Companies

Resource Link
AgeNet Eldercare Network

Q. What are the new contribution limits for IRAs, 401(k)s, and other retirement plans?

A. The Economic Growth and Tax Relief Reconciliation Act of 2001 enacted a number of changes to the rules regarding IRAs, 401(k)s, 403(b)s, and other retirement plans. One of the areas affected are contribution limits. However, it is important to remember that a number of the changes are being phased in between 2002 and 2010. Also, the Act does not apply to tax years after 2010. It will be up to Congress to renew or change the law; they may even do so well before 2010.

Traditional and Roth IRAs

Contribution limits for Traditional and Roth IRAs will rise from $2000 to $5,000 between 2002 and 2008. After 2008, the limit may be adjusted annually for inflation.

Tax Year Limit
2002-2004 $3,000
2005-2006 $4,000
2008 $5,000
2009-2010 Indexed to Inflation

401(k), 403(b), and 457 Plans

These limits are on pretax contributions to certain employer- sponsored retirement plans. Remember that employers have the option of imposing lower limits than the government maximums, which will rise to $15,000 by 2006.

Tax Year Limit
2002 $11,000
2003 $12,000
2004 $13,000
2005 $14,000
2006 $15,000
2007-2010 Indexed to Inflation

Catch-Up Contributions

"Catch-up" contributions are for people aged 50 and over, in order to balance out the advantages of increased contributions for younger individuals. To be eligible for a catch-up contribution, an individual must first make the maximum regular contribution to his or her IRA or employer-sponsored plan.

Tax Year Catch-Up Contribution
2002-2005 $500
2006-2010 $1000

Catch-up contributions to Traditional IRAs may be tax deductible if the taxpayer meets certain income restrictions.


A SIMPLE plan is a retirement planning vehicle for small business owners and employees. There is a catch-up contribution available for SIMPLE plans that will be gradually increased to $2,500 by 2006, and then indexed to inflation for 2007 through 2010.

Tax Year Limit
2002 $7,000
2003 $8,000
2004 $9,000
2005 $10,000
2006 Indexed to inflation

There are many other changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001, the nuances of which may affect your eligibility for various tax benefits. For instance, the tax-deductible portion of the contribution limits may be reduced depending upon your income. The advice of a qualified professional should always be sought before implementing any tax or financial planning strategy.

Penalties Sought in Pension Violations
U.S. Rep. Bernard Sanders (I-Vt.) stated that he would seek reprimands for those companies that underpaid their retirees through cash balance plans.

Read the full abstract at:

Fusillade in Social Security War
Sen. Jon Corzine's (D-N.J.) criticism of President Bush's plan to let workers invest part of their Social Security payroll taxes in individual accounts was met with rebuttal by Cato Institute analyst Andrew Biggs...

Read the full abstract at:

One-Person 401(k)s Make a Lot of Sense for Self-Employed
One-person or "owner-only" 401(k) plans have become more attractive for some self-employed workers since last year's tax-cut bill...

Read the full abstract at:

AARP Joins Three Lawsuits Against Large Drug Companies
Alleging that some drug companies have deliberately kept prices high and suppressed competition, AARP has joined three ongoing lawsuits and will seek monetary damages.

Read the full abstract at:

AgeNet Eldercare Network

This site supports the information, product, and service needs of people who have become caregivers for elder members of their families. Topics include everything from heath care and financial strategies to prescription drug assessments and maintaining independence. You'll find directories for health care practitioners and housing options, as well as information on guardianship, livings wills, estate planning, and retirement.


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