New IRA Limits Are For 2002 Tax Returns

A very common question I have been receiving deals with the new higher limits of $3,000 per person for traditional and Roth IRA contributions. Many people are under the assumption that they are effective for the 2001 tax returns which we are currently working on. That is not the case. The $3,000 limit is effective for 2002, 2003 and 2004 tax returns.

However, while you may not be able to deduct the new higher amount until next filing season, you can still take advantage of the new higher limit now. 2002 IRA money can be deposited any time between January 1, 2002 and April 15, 2003. The sooner you can afford to put that money in, the sooner it will start earning tax deferred or tax free income.

Under the existing law, which we all know is subject to change at the whim of our rulers in DC, the limits for traditional and Roth IRAs will rise to $4,000 for the 2005 through 2007 tax years. It will be $5,000 for 2008. After 2008, the annual limit will be adjusted for inflation. Again, this all depends on our masters in DC not messing with the tax law between now and 2008, which is about as likely as little green men from Mars joining the starting lineup of the New York Yankees.

KMK
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/12/2002 04:55:00 PM Send this post: