Seattle Press on Line - Take Advantage of New Tax Breaks

Take Advantage of New Tax Breaks

Jan 03, 2002 -- If you are reading this, you probably have received your tax rebate check from the Federal Government. However, the Tax Relief Act of 2001 provides more than rebate checks. It includes provisions that could impact your financial security, from college savings to retirement planning.

The act provides many tax benefits to individuals, including:

Education savings incentives
Tax rate reductions
Increased Individual Retirement Account (IRA) contribution limits
Increased contribution limits on 401(k)s and other employer-sponsored retirement plans
Increased tax credit
Marriage penalty relief
Reduced estate tax rates

A Better Community Through Better Investing

Would you like to help make your community better? Of course you would. But are you prepared to help pour the concrete foundation of a new area school? Probably not. How can you take an active part in improving your community without wearing a hard hat? The answer is simple: municipal bonds. Your investment in local municipal bonds provides the funding for community improvements.

Municipal bonds are issues by cities and states to finance public projects like construction of schools, roads, hospitals, or bridges. When you buy a municipal bond, along with the satisfaction of knowing you helped make these improvements possible, you receive a fixed interest payment every six months. In addition, all the interest you receive from municipal bonds is free from federal income tax, and in some cases, state and local tax as well.

When you fill out your IRS Form 1040, you can move the amount of your exempt line. The more income you can move, the more you keep.

Because of the tax advantages they offer, municipal bonds provide significantly more after-tax income than comparable taxable investments paying higher interest rates. Be careful not to focus strictly on the pre-tax return of your investments.

So, go ahead and put that hard hat away. There's an easier way to better the community and better your after-tax income at the same time. Tax-free municipal bonds may be the answer.

Retirement Planning

For the first time since 1981, the contribution limit to an IRA is changing. Beginning in 2002, you can make a $3,000 contribution (up from $2,000) to your Roth or Traditional IRA. That figure will increase incrementally until 2008, when the annual IRA contribution will be $5,000. After 2008, IRA contributions will be adjusted in $500 increments annually for inflation.

And if you are at least 50 years old, you may be able to make catch-up contributions to your IRA. Increasing your contributions means more security during retirement. An eligible married couple could contribute $7,000 in 2002.

The new legislation also will increase the contribution limits on your 401(k) and other employer-sponsored retirement plans.

College Savings

Education IRAs have a new name--Coverdell education savings accounts--and a new annual contribution limit of $2,000, up from $500. By maximizing your annual contribution, you'll make that college savings fund grow faster.

Qualified state tuition plans or 529 plans have become very popular, and that popularity just may grow. Earnings are not taxed as they accumulate and significant amounts can be contributed. And as a result of this new legislation, earnings that were previously taxed can be withdrawn tax-free to pay for higher education expenses beginning in 2002.

Small Business Owners

Another provision in this sweeping legislation is the incentives given to small business owners looking to start company-sponsored retirement plans for their employees. Business owners with 100 or fewer employees can receive a tax credit of up to $500--during each of the plan's first three years--when establishing a new, qualified retirement plan in 2002.

Additionally, the $1.35 trillion tax-cut bill offers an increase in the child credit, provides marriage penalty relief, eliminates the death tax by 2010, and provides for both short- and long-term economic growth.

To briefly recap, this new legislation helps Americans plan better for today and tomorrow. So remember to take advantage of all the available tax incentives this new plan offers.

Marko Tubic is with the Fremont Edward Jones Office, 285-1777.

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alonzo	Jul 10, 2003	woodbridge,nj	Internet marketer
I have a timeshare I would like to use a business incentive to increase sales. can i write off the timeshare payments i am currently making to pay for the timeshare.


James Dewey	Aug 02, 2003	Gig Harbor, WA	educator/business owner
Are there any limits as to how much one can invest in municipal bonds?

Money Muse

Take Advantage of New Tax Breaks

By Marko Tubic

Reader Comments