Tax Legislation:

Economic Growth and Tax Relief Reconciliation Act of 2001: Part V (May 17th, 2001)


Some of the highlights are:

- Increases the Individual Retirement Account (IRA) annual dollar contribution limit to $3,000 for 2002 through 2004, $4,000 for 2005 through 2007, and $5,000 for 2008 and thereafter, with indexing in $500 increments thereafter. Provides, for individuals age 50 and older, that such limit shall be increased by $500 for 2002 through 2005 and by $1,000 for years 2006 and thereafter. Allows them to catch up on their retirement savings.

- Deems certain voluntary employee contribution to accounts and annuities established under an employer plan as IRAs rather than pension plans as long as it’s covered under the qualified employer plan.

- Increases annual benefit limits to $160,000 (currently to $140,000) and annual contribution limits to $40,000 (currently lesser of 25% of compensation or $35,000). Increases, over five years, the annual contribution limits for 401 (k) and other employer-sponsored plan to $15,000 (for 401[k] and 403[b] its currently $10,500 and for section 457 plans its currently $8,500).

- Provides that elective deferrals shall not be taken into account for purposes of limits on certain plan contributions.

- Increases certain deduction limits to 25% instead of 15% for stock bonus and profit sharing trusts and for defined contribution plans.

- Provides for optional treatment of elective deferrals as Roth contributions. Traditional IRA holders will now have the option of having their deductibles taxed and their withdrawals tax-free.

- In an effort to get lower-income individuals to start investing in retirement savings, a 10 to 50 percent credit has been introduced. The maximum amount of contribution eligible for credit for one year is $2000. The maximum adjusted gross income is $50,000 for married filing jointly, $37,000 for head of households, and $25,000 for single filers after which the credit completely phases out.

- Allows an eligible small employer a pension plan startup cost credit of up to $500 for each of the first three years. In a bid to get more small businesses to start offering retirement plans.

- Eliminates user fee requirements for requests to the Internal Revenue Service (IRS) concerning the status of pension plans.

- Provides for faster vesting of certain employer matching contributions. It’s three years now instead of five for the contribution to be fully vested. This helps individuals who change jobs frequently in today’s economy and are unable to take full advantage of company retirement savings plans.

- Modifies Section 415 aggregation rules for multi-employer plans.

Other highlights are:

- Increases the alternative minimum tax exemption amount by $4,000 for married couples filing a joint return and surviving spouses by $2,000 for other filing categories. This lasts only till year 2004.

- Excludes from gross income and from adjusted gross income computations which consider excluded income (including Social Security benefits) specified restitution payments received by persons (or heirs) persecuted by Nazi Germany, its allied or controlled countries, or any other Axis regime because of race, religion, physical or mental disability, or sexual orientation.