Topics — Tax Year 2003
Topics — Tax Year 2004 and Later
Tax Year 2003
403(b) Plan Changes
Increase in the limit on elective deferrals.
For 2003, the limit on elective deferrals has been increased from $11,000 to $12,000. The limit on elective deferrals will increase by $1,000 each year through 2006.
Catch-up contributions.
If you are age 50 or older by the end of 2003, you may be permitted to make additional catch-up contributions of up to $2,000 to your 403(b) plan.
More information.
Publication 571, Tax-Sheltered Annuity Plans (403(b)) Plans, has more information.
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Individual Retirement Arrangements (IRAs)
Modified AGI Limit for Traditional IRAs Increased
For 2003, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:
- More than $60,000 but less than $70,000 for a married couple filing a joint return or a qualifying widow(er),
- More than $40,000 but less than $50,000 for a single individual or head of household, or
- Less than $10,000 for a married individual filing a separate return.
For all filing statuses other than married filing separately, the upper and lower limits of the phaseout range increased by $6,000. Publication 590, Individual Retirement Arrangements (IRAs), has more information.
Deemed IRAs
For plan years beginning after 2002, a qualified plan (defined later) can maintain a separate account or annuity under the plan to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of a traditional IRA or Roth IRA, it is deemed a traditional IRA or Roth IRA. A deemed IRA is subject to IRA rules and not to qualified plan rules. Also, the deemed IRA and contributions to it are not taken into account in applying qualified plan rules to any other contributions under the plan. Voluntary employee contributions must be designated as such by employees covered under the plan. They are includible in income.
Qualified plan. For deemed IRA purposes, qualified plans are defined contribution plans, defined benefit plans, annuity plans described in section 403(a), 403(b) plans, or section 457 deferred compensation plans.
Amending the plan. If you want to provide for a deemed IRA, you will have to amend your plan. For information on amending your plan, see Revenue Procedure 2003–13 in Internal Revenue Bulletin 2003–4.
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Qualified Plans
Elective Deferrals (401(k) Plans). The limit on elective deferrals for participants in 401(k) plans (excluding SIMPLE plans) is as follows.
|
Year
|
Limit
|
| 2003 |
12,000
|
| 2004 |
13,000
|
| 2005 |
14,000
|
| 2006 and later years |
15,000
|
Note. The $15,000 limit is subject to adjustment after 2006 for cost-of-living increases.
Catch-up contributions. A plan can permit participants who are age 50 or older at the end of the calendar year to make catch-up contributions, as follows.
|
Year
|
Catch-Up Limit
|
| 2003 |
2,000
|
| 2004 |
3,000
|
| 2005 |
4,000
|
| 2006 and later years |
5,000
|
Note. The $5,000 limit is subject to adjustment after 2006 for cost-of-living increases.
The catch-up contribution limit. The catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts:
- The catch-up contribution limit.
- The excess of the participant's compensation over the elective deferrals that are not catch-up contributions.
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Simplified Employee Pensions (SEPs)
The limit on elective deferrals and catch-up contributions for participants in SARSEPs are the same as for Qualified Plans.
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SIMPLE Plans
Salary reduction contributions. The limit on salary reduction contributions to a SIMPLE is as follows.
|
Year
|
Limit
|
| 2003 |
8,000
|
| 2004 |
9,000
|
| 2005 and later years |
10,000
|
Note. The $10,000 limit is subject to adjustment after 2005 for cost-of-living increases.
Catch-up contributions. A SIMPLE plan can permit participants who are age 50 or older at the end of the calendar year to make catch-up contributions, as follows.
|
Year
|
Catch-Up Limit
|
| 2003 |
1,000
|
| 2004 |
1,500
|
| 2005 |
2,000
|
| 2006 and later years |
2,500
|
Note. The $2,500 limit is subject to adjustment after 2006 for cost-of-living increases.
The catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts.
- The catch-up contribution limit.
- The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions.
Publication 590, Individual Retirement Arrangements (IRAs), has more information.
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Thrift Savings Plan
Catch-up contributions. Beginning in 2003, participants in the TSP who are age 50 or over at the end of the year generally will be able to make catch-up contributions to the plan. For 2003, the maximum catch-up contribution is $2,000.
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Tax Year 2004 and Later Years
Individual Retirement Accounts
Modified AGI Limit for Traditional IRA Contributions Increased
For 2004, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross income (AGI) is:
- More than $65,000 but less than $75,000 for a married couple filing a joint return or a qualifying widow(er),
- More than $45,000 but less than $55,000 for a single individual or head of household, or
- Less than $10,000 for a married individual filing a separate return.
For all filing statuses other than married filing separately, the upper and lower limits of the phaseout range will increase by $5,000. Chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs), has more information.
New Method for Figuring Net Income On Returned or Recharacterized IRA Contributions
There is a new method for figuring the net income on IRA contributions made after 2003 that are returned to you or recharacterized. For more information, see How Do You Recharacterize a Contribution? or Contributions Returned Before Due Date of Return in chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs).
For figuring the net income on IRA contributions made during 2002 and 2003 that were returned to you or recharacterized, you can use the method described in Publication 590, the method permitted by Notice 2000–39, or the method in the proposed regulations.
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403(b) Plan Changes
Increase in the limit on elective deferrals.
For 2004, the limit on elective deferrals is increased from $12,000 to $13,000. The limit on elective deferrals will increase by $1,000 each year through 2006.
Increase in the limit on annual additions.
For 2004, the limit on annual additions has increased to the lesser of $41,000, or your includible compensation for your most recent year of service. In 2003, your limit on annual additions was the lesser of $40,000 or your includible compensation for your most recent year of service.
Catch-up contributions.
If you are age 50 or older by the end of 2004, you may be permitted to make additional catch-up contributions of up to $3,000 to your 403(b) plan.
More information.
Publication 571, Tax-Sheltered Annuity Plans (403(b)) Plans, has more information.
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Qualified Plans
Limits on Contributions and Benefits. For years ending after 2003, the maximum annual benefit for a participant under a defined benefit plan increases to the lesser of the following amounts.
- 100% of the participant's average compensation for his or her highest 3 consecutive calendar years.
- $165,000 (subject to cost-of-living increases after 2004).
For years beginning after 2003, a defined contribution plan's maximum annual contributions and other additions (excluding earnings) to the account of a participant increases to the lesser of the following amounts.
- 100% of the compensation actually paid to the participant.
- $41,000 (subject to cost-of-living increases after 2004).
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Simplified Employee Pensions (SEPs)
Deduction Limit Increased
The maximum deduction for contributions to a SEP remains unchanged at 25% of the compensation paid or accrued during the year to your eligible employees participating in the plan. However, for years beginning after 2003, the maximum combined deduction for a participant's elective deferrals and other SEP contributions increases to $41,000.
Contribution Limit Increased
For years beginning after 2003, 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.
- $41,000 (subject to cost of living adjustments after 2004).
Compensation Limit
For years beginning after 2003, the maximum amount of an employee's compensation you can consider when figuring SEP contributions (including elective deferrals) and the deduction for contributions increases to $205,000.
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Thrift Savings Plan
Catch-up contributions. Beginning in 2003, participants in the TSP who are age 50 or over at the end of the year generally will be able to make catch-up contributions to the plan. For 2004, the maximum is increased to $3,000.
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updated 24-DEC-2003
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