WASHINGTON (AP) -- Taxpayers 50 and older who are worried they haven't been saving enough for retirement can start to remedy that problem immediately.
Not only did the limit on tax-deferred contributions to Individual Retirement Accounts and other retirement savings plans increase for last year, but people who reached age 50 before 2003 can make ''catch-up'' contributions of $500 to $1,000, depending on the type of retirement plan.
That may not seem like much, but the new catch-up contribution comes as baby boomers -- notorious undersavers -- are facing the not-so-far horizon of their golden years.
''From a financial planning standpoint, age 50 is when you're at the crossroads,'' says Brenda Schafer, senior tax research coordinator for H&R Block. ''You realize the imminence of your retirement and you're in the financial position where you can make these contributions -- $500 for 15 years can make a difference.''
The catch-up provision is one of several changes affecting retirement tax benefits for 2002. Taxpayers now can contribute more to certain retirement plans, get larger tax benefits for doing so and have more options for retirement account rollovers and distributions.
Saving for retirement through IRAs, employer-sponsored 401(k)s or similar plans can lower your current tax obligation because tax on your contributions may be deferred -- if you meet certain income limitations -- until you start drawing distributions. Your earnings on such plans are also tax-deferred.
For an IRA you may contribute right up to April 15, 2003, and have it count for 2002. Keep in mind, though, that if you participate in an employer's retirement plan, you'll be entitled to only a partial or no deduction for your contributions to a separate IRA, depending on your income.
For 2002, a new ''Retirement Savings Contributions Credit'' is in place to help lower-income taxpayers save more for retirement by giving them a tax credit in addition to tax-deferred retirement contributions they are already allowed. A taxpayer with an income of up to $25,000 for single filers ($37,500 for unmarried heads of household, $50,000 for married couples filing jointly) can take a credit of up to $1,000 ($2,000 for those filing jointly), and taxpayers with the least income are eligible for the largest credit.
Also in 2002, the allowable annual contribution to traditional IRAs and Roth IRAs rose to $3,000 from $2,000. Contributions to some types of employer-sponsored plans also increased.
Rollovers -- tax-free transfers from one retirement plan or IRA to another -- are easier for 2002. If you changed jobs last year, for example, you may have been able to move your retirement assets from one employer's plan to another, even if the plans were different types, depending on your new plan's rules. IRAs also can be rolled over to employer plans. If your spouse dies, you can roll over his or her distributions from a retirement plan into your own retirement plan.
For nondeductible contributions to a traditional IRA, you must file form 8606 to avoid paying taxes on those contributions when you begin drawing on them later on.
Contributions to Roth IRAs are subject to taxes in the year they are made, but earnings and eventual distributions aren't taxed if you meet certain requirements.
By the way, don't forget to deduct trustee or management fees charged to you each year by those who administer your IRA; list those in the miscellaneous itemized deduction section of your Schedule A. But make sure you pay for them outside the IRA. If the fees are subtracted from the IRA account, there is no deduction.
One other 2002 note: last year IRS issued new life expectancy tables that assume people will live longer and their IRA distributions will therefore be spread over a longer period of time. The result is a reduction in the minimum required distribution -- and thus the annual tax obligation -- of those age 70 1/2 and older.
For detailed information on retirement tax benefits, see IRS Publication 590, ''Individual Retirement Arrangements (IRAs);'' Publication 575, ''Pension and Annuity Income;'' Publication 721, ''Tax Guide to U.S. Civil Service Retirement Benefits;'' Publication 939, ''General Rule for Pensions and Annuities.''
These may be downloaded from the IRS Web site. Or for copies, call 1 (800) 829-3676 (1-800-TAX-FORM).
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