2002 Qualified Plan Limits
Most of the qualified plan limits are indexed to inflation, subject to certain rounding rules. Most of the plan limits were increased by EGTRRA beyond the CPI-indexed increases that would have otherwise taken place. Most significant are the increases in 401(k) pre-tax contributions scheduled for the next 5 years, catch-up contributions for employees age 50 and older, increase in maximum annual pensions, and the increase in considered compensation to $200,000.
2002 |
Limit |
2001 |
$11,000 |
Maximum employee pre-tax deferral in a 401(k) or 403(b) plan (Increased by $500 from 2001). This limit is scheduled to increase by $1,000 per year in the future until $15,000 is reached. | 10,500 |
$1,000 |
Catch-up elective deferrals for employees with their 50th or later birthday in 2002. The catch-up amount will increase to $2,000, $3,000, $4,000, and $5,000 over the years 2003 TO 2006. Plans are not required to allow catch-ups and a plan amendment is required to do so. | None |
$7,000 |
Employee deferral limit for SIMPLE plans (IRA and 401(k) versions). | 6,500 |
$11,000 |
Maximum pre-tax deferral in a governmental deferred compensation (457) plan. (Increased by $2,500 over last year’s limit). | 8,500 |
$40,000 or 100% of pay |
Annual addition limit for defined contribution plans (increased by $5,000). The percentage of pay limit for defined contribution plans is increased from 25% of pay to 100% of pay. | 35,000 or 25% of pay |
$200,000 |
Maximum compensation that can be considered in a qualified retirement plan. (A $30,000 increase over last year’s limit). Certain grand-fathered governmental plans may use a limit of $285,000 (was $275,000 in 2000) | 170,000 |
$160,000 |
Maximum annual pension payable from a defined benefit plan at age 65 as a life only annuity (increased by $20,000 from 2001 limit). Adjusted for payments starting before age 62 (but less than in the past) and other forms of annuity. Applies to plan years ending in 2002 so non-calendar year plans my use the higher limit in the 2001-02 year. | 140,000 |
$90,000 |
The dollar limit in the definition of "highly compensated employees" for nondiscrimination testing. The rules were changed for 1997 under Pension Simplification. The new definition includes only a) 5% owners or b) employees earning over $85,000 (indexed to the Consumer Price Index and based on the prior year’s compensation). The employer may elect to limit the over $85,000 pay group to the top 20% of payroll. | 85,000 |
Employer deduction limit |
Employee elective deferrals are no longer counted towards the aggregate employer deduction limit of 25% of participant payroll. | NA |
Highlights
| The
catch-up provision – a boon to employees age 50 and over And a tax credit for low income employees |
The IRS has recently issued
proposed regulations for the catch-up contribution
provision included in EGTRRA in July. Employers may rely
on the proposed regs until final regs are issued.
Highlights include:
Contributions are only deemed as catch-up contributions at the end of the year (contributions intended as catch-up amounts may end up being under the standard limit in some situations). EGTRRA also provides a tax credit for low-income employees as an incentive for them to contribute to 401(k) and similar plans or IRAs. A credit of up to 50% of the employee’s first $2,000 contributed is available in 2002 through 2006. The maximum credit applies to employees earning less than $15,000. The credit declines for employees making up to $50,000 (married employee) or $25,000 (single employee). Employers may wish to emphasize this important incentive to eligible employees, who may not be aware of this opportunity otherwise. |
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| 2002 Social Security Increases | Social Security recipients will receive a 2.6% increase in their benefits in January 2002. The increase, which is based on the annual change in the CPI, is the less than the increase in 2001. The prior six increases have been 1.3%, 2.1%, 2.9%, 2.6%, 2.4%, and 3.5%. The maximum benefit for an individual retiring at age 65 in 2002 is $1,660 per month (up from $1,536 last year). The Taxable Wage Base for 2002 is $84,900; annual increases are indexed to US wage levels. The Medicare Part A deductible for 2002 is $812 (up from $792 last year) and the Part B premium is $54.00 (up from $50.00 last year). | |||||||||||||||||||||
| 2001 Federal Income Tax Rates | The following rates are
applied to 2001 taxable income.
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