One objective of the federal government’s new tax law is to get taxpayers to save more money for retirement. Here’s a rundown of how you and your employees can take better advantage of different types of retirement accounts.

Individual Retirement Accounts/Roth IRA’s
Under the new tax law, the current maximum contribution of $2,000 a year will go to:


  • $3,000 in 2002 through 2004;
  • $4,000 in 2005 through 2007;
  • $5,000 in 2008. After 2008, contributions will be adjusted for inflation in $500 increments.



For taxpayers 50 years old and older, the maximum contribution limits would increase by an additional $500 in 2002 through 2005, and $1,000 in 2006 and later.

401(k) and 403(b) Plans
For 401(k) and 403(b) employer-sponsored retirement plans, the maximum deductible contributions will increase from the current $10,500 to:


  • $11,000 in 2002;
  • $12,000 in 2003;
  • $13,000 in 2004;
  • $14,000 in 2005;
  • $15,000 in 2006 and later.



Taxpayers 50 years old and older can contribute more. For these folks, the maximum contribution will be:


  • $12,000 in 2002;
  • $14,000 in 2003;
  • $16,000 in 2004;
  • $18,000 in 2005;
  • $20,000 in 2006 and later.



Other Tax Changes
As of last year, it will take only three years instead of five years to be fully vested in your employer-sponsored retirement plan.


  • Employees changing jobs will be able to make rollovers between different types of employer-sponsored plans – or from a regular IRA to an employer’s plan.
  • Beginning in 2003, employers will be authorized to set up IRA-type accounts for employees besides 401(k) and 403(b) plans. Currently, you must find a custodian on your own to set up an IRA.
  • In 2006, employers will be able to offer Roth-type 401(k) or 403(b) plans in which contributions are not tax-deductible but withdrawals eventually can be made tax-free.



Although these tax changes are being phased in gradually, now is the time to start planning.