Key 401(k) Provisions in the Bush Tax Plan
July 23, 2001
* Increased contribution limits: Maximum annual contributions will increase from the current cap of $10,500 to $11,000 in 2002 and will increase in increments of $1,000 until 2006 when they will hit $15,000. After 2006, maximum contributions will increase in increments of $500 based on cost-of-living increases.
* "Catch-up" provision: Those 50 and older will be able to contribute an additional $1,000 in 2002. That cap will also increase annually through 2006 when it reaches $5,000. The "catch-up" provision is also subject to cost-of-living increases after 2006.
* Increased maximum pension benefits: Retirees can currently receive a maximum of $140,000 per year under defined benefit plans. Starting in 2002, that cap will increase to $160,000 each year.
* Increased contributions to profit sharing and stock bonus plans: The limit will increase from 15% to 25% starting in 2002.
* Same treatment as an IRA: 401(k) and 403(b) plan participants can elect to subject their salaries to taxes when contributions are made and then withdraw money tax-free when they retire.
* Faster vesting for matching contributions: The matching funds a company kicks into retirement accounts will vest after three years of employee service instead of five.
* Lower-income tax credits: Those earning $50,000 or less who file on a joint tax return and contribute to employer-sponsored retirement plans can get a 10-50% credit on their retirement contribution. The credit, which will be offered from 2002 through 2006, is also available to heads of house of household who earn $37,500 or less and singles who earn $25,000 or less.