By  Joseph K. Hollak - Financial Consultant

Happy New Year?  It could be, if you remember to take advantage of some of the provisions of the Economic Growth and Tax Relief Reconciliation Act.  The majority of its sweeping revisions take effect this year, 2002.  Here is a brief rundown of some of the key previsions:

Adoption Tax Credit increases from $5,000 to $10,000 per child (it phases out for all taxpayers with modified adjusted gross incomes of $150,000).

Education IRA contributions limit increases from $500 to $2,000 per child. Qualifying education expenses now include elementary and secondary school expenses.  Adjusted gross income thresholds are raised from $150,000-$160,000 to $190,000-$220,000 for taxpayers filing a joint return. Contributions to an Education IRA and a Section 529 college savings plan for the same beneficiary in the same year are permitted, but are no longer subject to an excise tax.

Earnings on qualified Distributions from Qualified State Tuition Programs (Section 529 Plans) are exempt from federal income tax.  (Please note that the federal tax exemption is due to expire on December 31, 2010, unless the law providing for the federal exemption is extended).  First cousins of a beneficiary are now included in the definition of "member of the family" for transfers between accounts.  Account rollovers are permitted from one existing 529 plan balance to another once every 12 months without a change of beneficiary.

Income eligibility for requirements for student loan interest deductions increase to $50,000-$65,000 for single filers and $100,000 - $130,000 for married taxpayers filing jointly.   Interest payments can be deductible any time during the repayment schedule.

Maximum annual contribution limits for Traditional and Roth IRAs increase to $3,000.  Individuals age 50 or older may make an additional $500 contribution ($3,500 total).

Contribution limits for 401(k), 403(b) and 457 Plans increase to $11,000 ($12,000 for those age 50 and older with the catch-up provision).

Salary deferral limits for SIMPLE plans increase to $7,000 ($7,500 for the 50 and older crowd).

You are, generally, free to move your retirement assets from one type of retirement plan to another.

Employer-sponsored defined contribution plan limit increases to $40,000, and the 25% of compensation limit increases to 100%.  The maximum annual defined benefit increases to $160,000—eligible compensation amount used to determine maximum contributions or benefits increases to $200,000.

The unified credit exemption amount for estate and generation-skipping transfer (GST) taxes and the unified credit exemption for purposes of gift taxes are $1 million. 

Estate, gift and GST tax rates are reduced to 50%.

Now is a good time to talk with your financial and legal advisors to determine how this legislation could affect your finances.

Salomon Smith Barney does not provide tax or legal advice. Please consult you legal and/or tax professional for such guidance. Source: The Economic Growth and Tax Relief Act of 2001, Prepared by the Joint Committee on Taxation, U.S. House of Representatives.

Joseph K. Hollak - Financial Consultant
Salomon Smith Barney
121 SW Morrison Street, 16th Floor 
Portland, OR 97204
503-221-6680 or 1-800-452-0966

(C) 2002 Joseph Hollak