As 401(k) plans become ever more important in retirement planning, it pays to know all the options available to maximize the money that will be available for longer and longer lifespans. Since surveys have shown so many people to be clueless about how much they’ll need to support themselves in those years after working, advisors must try to boost awareness–in themselves and their clients–of all the possibilities open for retirement planning.
According to Catherine Collinson, senior VP at Transamerica Retirement Services, advisors and their clients should be aware of the following breaks for 401(k)s provided by EGTRRA, the Economic Growth and Tax Relief Reconciliation Act of 2001.
1. Increased deferral, contribution, and benefit limits allow both employers and individuals to save more in 2002.
2. Catch-up provisions beginning this year allow employees who are 50-years-old and up to contribute extra amounts. Provisions increase by $1,000 per year until 2006.
3. Low- to middle-income employees can take advantage of new tax credits to contribute to their retirement plans.
4. Small business tax credits allow businesses with 100 or fewer employees to take a tax credit equal to 50% of the first $1,000 of administration and retirement education expenses for the first three years when they start a new retirement plan.
5. Employees will find it easier to consolidate retirement assets under one plan, even if they change jobs.
6. Increased deduction limits for profit-sharing plans give retirement plan sponsors greater tax benefits for making these plans available to their workforce.