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October 14, 2001 at 08:00 PM
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.
