Important Changes for 2002

Increase in limits on elective deferrals under a SEP-IRA. In general, the limit on elective deferrals made on your behalf for 2002 that represent a reduction in your salary under a SEP-IRA cannot be more than $11,000 (up from $10,500 for 2001). For more information, see What Is a Salary Reduction Arrangement, in this chapter.

Increase in overall limits on SEP-IRA contributions. For 2002, your employer can contribute to your SEP-IRA up to the lesser of 15% of your compensation or $30,000 (up from $25,500 in 2001). For more information, see What Is a Salary Reduction Arrangement, in this chapter.

Additional elective deferrals under a SEP-IRA for persons 50 and older. For contributions made after December 31, 2001, additional elective deferrals can be contributed to your salary reduction arrangement SEP-IRA if:

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

See What Is a Salary Reduction Arrangement, 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 SEP. 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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