Publication 3991 (5/2002), Highlights of the Job Creation and Worker Assistance Act of 2002

IRAs and Other Retirement Plans

Table of Contents

2002 Changes

Simplified Employee Pensions (SEPs)

Contribution limit increased. For plan years beginning after December 31, 2001, the annual limit on the amount of employer contributions to a SEP increases to the lesser of the following amounts.

25% of an eligible employee's compensation.
$40,000 (subject to cost-of-living adjustments after 2002).

Deduction limit. For years beginning after 2001, the following changes apply to the SEP deduction limit.

Elective deferrals (SARSEPs). Elective deferrals under a SARSEP are not subject to the deduction limit that applies to employer contributions. Also, elective deferrals are not taken into account when figuring the amount you can deduct for employer contributions that are not elective deferrals.

Definition of compensation. Compensation for figuring the deduction for employer contributions includes elective deferrals under a SARSEP.

More information. For more information about SEPs, see Publication 560, Retirement Plans for Small Business.

403(b) Plans

Figuring catch-up contributions. When figuring allowable catch-up contributions, combine all contributions made by your employer on your behalf to the following plans.

Qualified retirement plans.
403(b) plans.
Simplified employee pensions (SEP).
SIMPLE plans.

The total amount of the catch-up contributions to all plans maintained by your employer cannot exceed the annual limit. For 2002, the limit is $1,000.

Rollovers to and from 403(b) plans. If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income.

Years of service for church employees and ministers. If you are a minister or church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. Prior law required church employees and ministers to figure years of service separately for each employer.

As a minister or church employee, all contributions made to 403(b) plans on your behalf, as an employee of a church or a convention or association of churches, are considered made by one employer.

Foreign missionaries. If you are a foreign missionary, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not more than the greater of:

$3,000, or
Your includible compensation.

More information. For more information about 403(b) plans, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans).

Later Change

Deemed IRAs

For plan years beginning after 2002, a qualified employer plan can provide for voluntary employee contributions to a separate account or annuity that is deemed to be an IRA.

For this purpose, a qualified employer plan includes a deferred compensation plan (section 457(b) plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state.

The term qualified employer plan also includes:

A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan),
A qualified employee annuity plan (section 403(a) plan), and
A tax-sheltered annuity plan (section 403(b) plan).

More information about IRAs can be found in Publication 590, Individual Retirement Arrangements (IRAs).