Important Changes for 2002

Increase in limit on salary reduction contributions under a SIMPLE. For 2002, salary reduction contributions that your employer can make on your behalf under a SIMPLE plan are increased to $7,000 (up from $6,500 in 2001). For more information, see How Much Can Be Contributed on My Behalf? in this chapter.

Additional salary reduction contributions to SIMPLE IRAs for persons 50 and older. For contributions made after December 31, 2001, additional salary reduction contributions can be made to your SIMPLE IRA if:

• You are 50 or older, and
• No other salary reduction contributions can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit.

See How Much Can Be Contributed on My Behalf? in this chapter.

Rollovers from SIMPLE IRAs. For distributions after December 31, 2001, you may be able to roll over, tax free, a distribution from your SIMPLE IRA to a qualified plan, a tax-sheltered annuity (section 403(b) plan), or deferred compensation plan of a state or local government (section 457 plan). For more information, see Two-year rule in this chapter.

Self-employment earnings for purposes of SIMPLEs. Beginning after 2001, for purposes of the limit on deductions for contributions to a self-employed person's SIMPLE IRA, net earnings from self-employment include services performed while claiming exemption from self-employment tax as a member of a group conscientiously opposed to social security benefits. For more information, see Self-employed individual compensation in this chapter.

Credit for salary reduction 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 salary reduction contributions to your SIMPLE. 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. Adjusted gross income is the amount from your Form 1040 line 33 or Form 1040A line 19.

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

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