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    Summary of Provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001

    The retirement provisions included in the Economic Growth and Tax Relief Reconciliation Act of 2001 are summarized below:

    • Deferral limits of 401k, 403b and 457 retirement plans increased to $11000 for the year 2002, then increasing $1000 per year upto $15000 in 2006. After this, the deferral limits will inrease by $500 a year.

    • SIMPLE IRA limits increased $1000 per year starting 2002, up until $10,000 in 2005. This limit will be reduced to $500 a year after 2010.

    • Limit of 415(b) plans increased to $160,000 starting 2002, with increments of $5000 per year.

    • Starting 2002, profit-sharing deduction limit will be reduced by 25%

    • Roth 401k plans will be introduced in 2006

    • Start up costs of a new small business retirement plan is now deductible as a tax credit. It is eligible as a tax credit for the first 3 years of the small business retirement plan.

    • Catch-Up Contribution Limit for Qualified 401k Retirement plans (for people over the age of 50) will be $1000 in 2002, with annual increments of $1000 per year, up until it reaches $5000 in 2006. Thereafter, it will be incremented by $500 per year.

    • Catch-Up Contribution Limit for SIMPLE plans will always be 50% of the above limits for 401k qualified retirement plans.

    • Starting from 2002, IRAs can be rolled over to other retirement plans and rollovers between defined contribution plans is permitted.

    • All employer matching contributions will have to be based on the top-heavy vesting schedule starting from 2002.

    • Involuntary cash distributions of $1000 or more will automatically be rolled over to an IRA unless the participant insists on taking out the cash, or insists on rolling over the cash to another retirement plan.

    • New retirement plans from small employers are exempt from paying the user fee for a determination letter.

     

     

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