STATE AND FEDERAL TAX LAW
• Federal
and State Tax Forms
•
U.S.
Tax Code On-Line New Tax Law Enhances Savings Programs
for Retirement, Education
The tax cut signed
into law by President Bush on June 7, 2001 includes provisions that are of significant
interest to financial institution customers, including new incentives for Americans
to save for retirement and education. Here are some highlights.
Retirement Savings: Contribution limits for Individual Retirement Accounts
(IRAs), including those for Roth IRAs (which differ from regular IRAs primarily
because the earnings may be tax-free), will gradually rise from the current $2,000
a year to $5,000 a year by 2008. Contribution limits also are increasing for employer-sponsored
retirement plans, such as 401(k) accounts. For example, the new law gradually
raises the maximum annual contribution to 401(k) accounts from the current $10,500
to $15,000 in 2006. Also, taxpayers at least 50 years old can make extra payments
into IRAs, 401(k)s and other retirement accounts, depending on the plan, up to
an additional $1,000 in 2002, and eventually up to $5,000 in 2006.
Education Savings: Earnings on Education IRAs, which are accounts
established to pay for a child or another beneficiary to attend school, generally
are exempt from federal taxes if they don't exceed the student's education
expenses.
Under the new law, the maximum contribution will increase from the current
$500 to $2,000 per year starting next year, and distributions are tax-free,
not just
tax-deferred. For the first time, employers will be permitted to contribute
to an employee's Education IRA, up to the statutory maximum dollar amount.
In addition,
the proceeds from an Education IRA also will become available to pay for elementary
and secondary school tuition, no longer only for the costs of higher education.
Student Loans: Currently, you can deduct up to $2,500
of interest expenses on student loans. Starting in 2002, there will be no limit
on the amount you can deduct if your income is below set levels ($55,000 for
an
individual return and $100,000 for joint filers).
In an unusual twist,
these and other tax breaks are scheduled to expire in 2011 and to be
replaced by the "old" tax rules. "This quirk in the tax law may add some
uncertainty to your long-term tax planning, but even so, there are still significant
benefits you can take advantage of for at least the next several years,"
says Rick Cywinski, an FDIC tax policy manager in Washington. "And
while there's no guarantee, it's very possible that between now and 2011
Congress
will
extend or even enhance these new tax-savings provisions."
Cywinski
and other FDIC officials suggest that you consult with your tax preparer, financial
planner or another trusted advisor if you have questions about the tax law
or
what it could mean for your finances.
Congressional Information
•
House Ways and Means Committee
•
Senate Finance Committee
• Joint
Committee on Taxation |
