The retirement plan advantages offered by EGTRRA are numerous. We’ll focus here on the key changes detailed in Figure 1.

First, EGTRRA increases the amount that both employers and their employees can contribute to a retirement plan each year. The employee limit on both 401(k) and 403(b) elective deferrals rises from $10,500 to $11,000 in 2002, and then increases in $1,000 annual increments through 2006, when it reaches $15,000. In subsequent years, it will be inflation-indexed in $500 increments. Similar limit increases, starting at $7,000 for 2002, apply to SIMPLE plans.

The current combined employer/employee annual maximum contribution limit of the lesser of $35,000 or 25% of compensation increases to the lesser of $40,000 or 100% of compensation in 2002.

And the maximum compensation on which a retirement plan contribution can be based increases from $170,000 in 2001 to $200,000 next year, with annual inflation adjustments in $5,000 increments thereafter.

EGTRRA also permits “catch-up” contributions by certain people age 50 or older, who may have contributed less than the maximum in earlier years. The limit for catch-up contributions will be $1,000 in 2002; it will then increase by $1,000 each year until it reaches $5,000 in 2006, after which it will be inflation-adjusted in $500 increments.

Catch-up contributions also are permitted in SIMPLE plans, at one-half the amount allowed for 401(k) and 403(b) plans, with $500 annual indexing after 2006.

Peter A. Welsh


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 15, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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