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When:
January 01, 2003

Who it Affects:
For taxpayers contributing to retirement plans at work.

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2003 Tax Law Changes
401(k) and related contribution limits go up for 2003

Your 401(k) plan helped your tax bill in 2003, even if the stock market might have only begun to recover.

In 2003, you could contribute up to $12,000 to a 401(k) plan. That was up from $11,000 in 2002. The limit is supposed to rise to $13,000 in 2004. The limit, in fact, wil rise $1,000 a year until 2006 when it hits $15,000.

If you're 50 or older at year-end, you can contribute an extra $2,000 in 2003 and 2004. 401(k) accounts are funded generally by payroll deductions at your workplace.

Here are the limits for other plans:

    457 Plans: The limit for 457 plans, used by state and local government employees, jumps to $12,000 in 2003 to be equivalent to 401(k) plans. Then, the limits rise like 401k) plans.

    SIMPLE Plans: The limit for SIMPLE retirement accounts, offered by smaller employers, will increase to $8,000 in 2003 from $7,000 in 2002. The limit rises to $9,000 in 2004 and $10,000 in 2005. After that, the limit is adjusted for inflation. If you're 50 or older by year-end, you contribute an extra $1,000 in 2003, $1,500 in 2004 and $2,000 in 2005. From 2006 onward, the limit is $2,500.

    Self-Employed Plans: The contribution limit for self-employed Keogh plans jumps to $40,000 in 2003, unchanged from 2002. The maximum contribution that self-employed workers can make to a Simplified Employee Pension (SEP) plan remains unchanged at the lesser of 25% of compensation or $40,000. (The 25% limit becomes 20% if you're the owner of the business.)

Related Tax Article(s): What the tax cut means to your wallet