This story appears in the
June 2002 issue of
Entrepreneur.
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When planning this year's tax strategy, take advantage of
tax benefits offered by retirement plans. Thanks to the Economic
Growth and Tax Relief Reconciliation Act of 2001, you can save up
to $11,000 in a 401(k) plan this year. The maximum contribution
will rise $1,000 a year until 2006, when it reaches $15,000.
The tax law changes also provide incentives to launch a
retirement plan. For example, business owners "can get a loan
from these plans under the same rules as everybody else," says
Karen Field, a senior manager in KPMG's Washington, DC,
national tax practice. Business owners didn't like locking up
capital in a 401(k) plan without the ability to get it out in
emergencies, she says.
Individuals 50 years old or older can also save more for
retirement and receive generous tax benefits by contributing an
additional catch-up amount of $1,000 to a 401(k) plan. The limit
will rise $1,000 a year until 2006, when catch-up contributions hit
$5,000 annually. They may also contribute an additional $500 to
SIMPLE plans.
The total compensation on which 401(k) contributions are based
also increases. The maximum now includes contributions made by
employee and employer. The ceiling has also increased to the lesser
of $40,000 or 100 percent of salary.
Take time to understand the latest retirement plan changes.
You're sure to benefit in the long run.
Great Falls, Virginia, writer Joan Szabo has reported on tax
issues for more than 14 years.
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