NU Online News Service, June 7, 4:15 p.m. – The Investment Company Institute, Washington, a trade group for mutual fund companies, says the recent enactment of the new federal tax bill will make the nation’s retirement plan system “significantly more responsive to the retirement savings needs of working Americans.”
The new tax law also will help encourage more Americans to save for their children’s education, according to Matthew Fink, the institute’s president.
Retirement and pension provisions in the tax package will raise the annual contribution limits on individual retirement plans.
The maximum contribution level for individual retirements accounts will increasedto $5,000 by 2008, from $2,000. Beginning next year, individual investors will be allowed to contribute $3,000 to IRAs. That limit will rise to $4,000 in 2005 through 2007.
At the same time, the maximum investment levels for 401(k), 403(b) and 457 plans will increase in stages to $15,000, from $10,500. The contribution limits will increase to $11,000 next year, $12,000 in 2003, $13,000 in 2004, $14,000 in 2005 and $15,000 in 2006.
The bill also makes it easier for employees to roll over pension savings to different plans when they change jobs.
Another feature of the bill is a catch-up provision that will allow people 50 years and older to help them save for retirement later in their working lives.
Education provisions in the legislation will permit greater contributions to education IRAs and provide new incentives for families to participate in other college savings plans. For instance, the maximum annual investment levels for education IRAs will be increased to $2,000 from $500 annually beginning in 2002. Tax-free withdrawals will be allowed not only for college but also for elementary and secondary schooling, the institute notes.