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Good News!! The New Tax Rules Will Provide a Myriad of Benefits The new tax rules will bring a lot of joy to a lot of taxpayers. But you have to understand the rules in order to take advantage of them. Most of these changes are phased in over the next several years and many of them expire unless Congress renews them. First, income tax rates are going to be reduced with the exception of the 15% tax bracket and a new 10% tax rate is being introduced. The rates will be reduced gradually between July 1 of 2001 until 2006.
Another major benefit of the new rules is the increased retirement plan contribution limits. First, annual IRA contribution maximums increase to $3,000 in 2002, rising thereafter until reaching $5,000 in 2008. If youre age 50 or older, you can contribute even more than these amounts, capping out at $6,000 in 2008.
Second, the maximum annual salary-reduction contributions to 401(k), 403(b), and 457 plans rises to $11,000 in 2002 and tops out at $15,000 in 2006.
If you have self-employment income, youll be pleased to learn that there are also increased limits for contributions to self-employed retirement plans. Finally, the new rules include a tax credit to encourage lower-income people to participate in retirement savings plans. The credit could be as high as $1,000. In addition to the retirement plan goodies, the new tax rules have a couple of nice changes for those of us who are putting money away for college. First, beginning in 2002, the education IRA annual contribution limits have been increased from a paltry $500 to a more sensible $2,000 level. Second, those families that have been wise enough to put money into a qualified state tuition plan, also called a Section 529 plan will henceforth be able to withdraw the money from the plan tax free to pay college costs. Under the old rules, the money withdrawn was taxed at the students tax rate.
Annual contributions to Education IRAs increased to $2,000 The last major change in the tax rules has also been the most controversial, and that is the gradual repeal of the estate tax. Beginning next year, the estate tax exemption will rise to $1 million. The estate tax is destined for complete repeal in 2010, but it will take a vote in Congress between now and then to make permanent the complete repeal.
Those are the highlights of the new tax rules, but there are many other features all of them positive, which will benefit individuals and families over the next several years. Ill be providing more information on them as the information becomes available. But in the meantime my advice to you, dear visitors, is to become familiar with the new tax rules so that you can take maximum advantage of them.
The IRS has just issued new proposed regulations that greatly improve the ability of retirees to stretch out their IRA withdrawals. These rules also apply to other qualified retirement plans, including 401(k)s and 403(b)s. While the regulations are "proposed," tax experts say they're extremely likely to become the law of the land without alteration. They take effect for IRA distributions for 2001 and for qualified retirement plan payouts beginning 2002. The previously complex rules surrounding withdrawals have been greatly simplified. The new rules apply to plan holders who are 70 1/2 or older who must make required minimum distributions (RMDs). Other beneficial treatment is accorded to the beneficiaries of IRA holders who die after age 70 1/2. Here are some of the highlights:
These rules actually simplify the tax regulations surrounding IRA withdrawals. Did you ever think you'd live long enough to see tax "simplification" that didn't result in tax "complification." Be sure to pay close attention to developing information on the new retirement plan withdrawal rules. SMART MONEY TIPS I dont know how good your record keeping is, but for most of us, as the saying goes, the biggest room in the world is the room for improvement. Weve got what I think is the best ever letter of instructions work sheet (go to: http://jonathanpond.com/LETTEROFINSTRUCTIONS.html You can download it at your convenience and begin to spiff up your personal record keeping for once and for all. Speaking of record keeping, let me ask you this question: Its 10 P.M., do you know where all of your U.S. savings bonds are? While they are far from the best investment, most of us have accumulated a handful of savings bonds over the years, probably starting when we were kids. If youve owned them for a long time, you may find out that some of your savings bonds no longer pay any interest. Bummer! But help is just a click or two away from the U.S. Treasury Department: Misplaced bonds may never again be a problem (assuming you can find them all now) if you use the wonderful Treasury Department Savings Bond Wizard. It enables you to maintain an inventory of your savings bonds, providing you with an important record if you every need to replace any of your savings bonds. Web site reference is: |