Friday, December 19, 2001
|
Friday, December 19, 2001 |
|
New tax law good for boomers From the Ga. Society of CPAs Nobody likes growing older, but age does have its merits particularly when it comes to the Economic Growth and Tax Relief Reconciliation Act of 2001. In fact, under the new act, few taxpayers get as many breaks as baby boomers, reports the Georgia Society of CPAs. In addition to the tax-rate cuts scheduled to be phased in over five years, the act includes several features likely to be popular with 50-somethings saving for retirement or paying for a child's college education. Starting next year, the new act allows for higher contributions to retirement savings vehicles, including IRAs, 401(k)s and other plans. While the basic increases in contribution levels apply to all taxpayers, regardless of age, beginning in 2002, people 50 and older can take advantage of the new act's "catch-up" provision that permits increased contributions to IRAs and company retirement savings plans. The act also impacts 50-somethings currently paying for their children's education and/or repaying education loans. And, unlike many of the other areas of the new tax law, most aspects of the retirement and education provisions take effect in 2002. For the years 2002 through 2004, the maximum IRA contribution for all eligible taxpayers is $3,000; for 2005 through 2007, it rises to $4,000. Beginning in 2008, the IRA contribution limit increases to $5,000. After that, the top limit will be indexed for inflation. If you're 50 or older, and you meet the new adjusted gross income limits for regular IRA contributions for the year, you're eligible to play "catch-up" on saving for retirement. This means you can contribute an extra $500 each year in 2002 through 2005 and an extra $1,000 in 2006 and beyond. Currently, participants in 401(k)s are limited to contributing to their employer-sponsored plans the lesser of 15 percent of pay or $10,500 annually. Starting next year, the percentage limits are eliminated. Under the new law, every qualifying taxpayer can contribute up to a set maximum even if that maximum represents 100 percent of earnings. In 2002, the maximum allowed 401(k) contribution goes up to $11,000 and then increases by $1,000 each year until 2006, when it reaches $15,000. There will be annual adjustments for inflation in $500 increments in years after 2006. The Tax Act of 2001 introduces a brand new and much-needed tax break for people paying college expenses. In 2002 and 2003, eligible taxpayers can deduct up to $3,000 worth of qualifying expenses "above the line," which means you do not need to itemize to get the break. The amount of the deduction will rise to $4,000 in 2004 and 2005 before it is scheduled to disappear. Eligibility is determined by adjusted gross income. Two caveats: This deduction is not available to married taxpayers filing separately, and the tuition deduction cannot be claimed in the same year as a HOPE or Lifetime Learning credit for the same student. If you're repaying a student loan, the new tax law has been kind to you as well. At present, qualifying taxpayers, even those who don't itemize, can claim a deduction for up to $2,500 per year for interest paid on student loans during the first 60 months that interest payments are required. Eligibility is determined by adjusted gross income. While the deduction for student loan interest remains limited to $2,500 per year under the new act, starting in 2002, eligibility to deduct student loan interest extends for the life of the loan. In addition, the phase-out rule that limits or eliminates college-loan interest deductions for high-income taxpayers has been liberalized. AGI eligibility for the student loan interest deduction will increase from $40,000-$55,000 to $50,000$65,000 for singles, and from $60,000-$75,000 to $100,000-$130,000 for married couples filing jointly. The GSCPA is a professional organization for CPAs in Georgia with over 10,000 members. For information visit www.gscpa.org.
|
Back to the top of the page