Important Changes for 2002

Increased traditional IRA contribution and deduction limit. The most that can be contributed to your traditional IRA for 2002 is the smaller of the following amounts:

• Your compensation that you must include in income for the year, or
• $3,000 (up from $2,000).

If you are 50 years of age or older in 2002, the most that can be contributed to your traditional IRA for 2002 is the smaller of the following amounts:

• Your compensation that you must include in income for the year, or
• $3,500 (up from $2,000).

For more information, see How Much Can Be Contributed? under Traditional IRAs.

Besides being able to contribute a larger amount in 2002, you may be able to deduct a larger amount. See How Much Can I Deduct? under Traditional IRAs.

Modified AGI limit for traditional IRA contributions increased. For 2002, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross income (AGI) is between:

• $54,000 and $64,000 for a married couple or a qualifying widow(er) filing a joint return,
• $34,000 and $44,000 for a single individual or head of household, or
• $-0- and $10,000 for a married individual filing a separate return.

For all filing statuses other than married filing a separate return, the upper and lower limits of the phaseout range increased by $1,000. See How Much Can I Deduct? under Traditional IRAs.

Credit for IRA contributions. For tax years beginning after December 31, 2001, if you are an eligible individual, you may be able to claim a credit for a percentage of your qualified retirement savings contributions, such as contributions to your traditional or Roth IRA. To be eligible, you must be at least 18 years old as of the end of the year, and you cannot be a student or an individual for whom someone else claims a personal exemption. Also, your adjusted gross income (AGI) must be below a certain amount.

For more information, see Publication 553, Highlights of 2001 Tax Changes.

Rollovers from traditional IRAs into qualified plans. For distributions after December 31, 2001, you can roll over, tax free, a distribution from your IRA into a qualified plan. The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Qualified plans may, but are not required to, accept such rollovers. Rules applicable to other rollovers, such as the 60-day time limit, apply. For more information, see Rollovers under Traditional IRAs.

Rollovers of distributions from employer plans. For distributions after December 31, 2001, you can rollover both the taxable and nontaxable part of a distribution from a qualified plan into a traditional IRA. If you have both deductible and nondeductible contributions in your IRA, you will have to keep track of your basis so you will be able to determine the taxable amount once distributions from the IRA begin.

For more information, see Publication 553, Highlights of 2001 Tax Changes.

Rollovers of deferred compensation plans of state and local governments (section 457 plans) into traditional IRAs. Before 2002, you could not roll over, tax free, an eligible rollover distribution from a governmental deferred compensation plan into a traditional IRA.

Beginning with distributions after December 31, 2001, if you participate in an eligible deferred compensation plan of a state or local government, you may be able to roll over part of your account tax free into an eligible retirement plan such as a traditional IRA. The most that you can roll over is the amount that would be taxed if the rollover were not an eligible rollover distribution. You cannot roll over any part of the distribution that would not be taxable. The rollover may be either direct or indirect.

For more information, see Publication 553, Highlights of 2001 Tax Changes.

Rollovers of traditional IRAs into deferred compensation plans of state and local governments (section 457 plans). Before 2002, you could not roll over tax free a distribution from a traditional IRA into a governmental deferred compensation plan.

Beginning with distributions after December 31, 2001, if you participate in an eligible deferred compensation plan of a state or local government, you may be able to roll over a distribution from your traditional IRA into a deferred compensation plan of a state or local government. Qualified plans may, but are not required to, accept such rollovers.

For more information, see Publication 553, Highlights of 2001 Tax Changes.

Rollovers of traditional IRAs into tax-sheltered annuities (section 403(b) plans). Before 2002, you could not roll over tax free a distribution from a traditional IRA into a tax-sheltered annuity.

Beginning with distributions after December 31, 2001, you may be able to roll over distributions tax free from a traditional IRA into a tax-sheltered annuity. You cannot roll over any amount that would not have been taxable.

Although a tax-sheltered annuity is allowed to accept such a rollover, it is not required to do so.

For more information, see Publication 553, Highlights of 2001 Tax Changes.

Participants born before 1936. If you were born before 1936, you may be able to use capital gain and averaging treatment on certain lump-sum distributions from qualified plans, but you will lose the opportunity to use capital gain or averaging treatment on distributions from a qualified plan if you roll over IRA contributions to that plan. You can retain such treatment if the rollover is from a conduit IRA. For more information on conduit IRAs, see IRA as a holding account (conduit IRA) for rollovers to other eligible plans in chapter 1 of Publication 590.

No rollovers of hardship distributions into IRAs. For distributions made after December 31, 2001, no hardship distribution can be rolled over into an IRA. For more information about what can be rolled over, see Rollover From Employer's Plan Into an IRA under Traditional IRAs.

Hardship exception to the 60-day rollover rule. Generally, a rollover is tax free only if you make the rollover contribution by the 60th day after the day you receive the distribution. Beginning with distributions after December 31, 2001, the IRS may waive the 60-day requirement where it would be against equity or good conscience not to do so.

For more information, see Time Limit for Making a Rollover Contribution under Traditional IRAs.

Increased Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2002 generally is the lesser of:

• $3,000 (up from $2,000), or
• Your taxable compensation.

If you are 50 years of age or older in 2002 and contributions on your behalf are made only to Roth IRAs, your contribution limit for 2002 generally is the lesser of:

• $3,500 (up from $2,000), or
• Your taxable compensation.

However, if your modified AGI is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Roth IRAs.

Contributions to both traditional and Roth IRAs for same year. If contributions are made on your behalf to both a Roth IRA and a traditional IRA, your contribution limit for 2002 is the lesser of:

• $3,000 ($3,500 if you are 50 years of age or older in 2002) (up from $2,000) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or
• Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.

However, if your modified AGI is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Roth IRAs.

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