Important Changes for 2003 - Individual Retirement Arrangements (IRAs)

Important Changes for 2003 - Individual Retirement Arrangements (IRAs)

Modified AGI limit for traditional IRAs. For 2003, 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 between:

	$60,000 and $70,000 for a married couple filing a joint return or a qualifying widow(er),
	$40,000 and $50,000 for a single individual or head of household, or
	$-0- and $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 increase by $6,000. For more information, see How Much Can I Deduct? in chapter 1.

Deemed IRAs. For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will only be subject to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA.

For this purpose, a qualified employer plan includes:

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

Increase in limits on elective deferrals under a SEP-IRA. In general, the limit on elective deferrals made on your behalf for 2003 that represent a reduction in your salary under a SEP-IRA cannot be more than $12,000 (up from $11,000 for 2002). For more information, see What Is a Salary Reduction Arrangement? in chapter 3.

Additional elective deferrals under a SEP-IRA for persons 50 and older. For 2003, additional elective deferrals can be contributed to your salary reduction arrangement SEP-IRA if:

	You will be 50 or older in 2003, and
	No other elective deferrals can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit.

For 2003, the additional amount is the lesser of the following two amounts.

$2,000 (up from $1,000 for 2002), or
Your compensation for the year reduced by your other elective deferrals for the year.

For more information, see What Is a Salary Reduction Arrangement? in chapter 3.

Increase in limit on salary reduction contributions under a SIMPLE. For 2003, salary reduction contributions that your employer can make on your behalf under a SIMPLE plan are increased to $8,000 (up from $7,000 in 2002).

For more information about salary reduction contributions, see How Much Can Be Contributed on My Behalf? in chapter 4.

Additional salary reduction contributions to SIMPLE IRAs for persons 50 and older. For 2003, additional salary reduction contributions can be made to your SIMPLE IRA if:

	You will be 50 or older in 2003, and
	No other salary reduction contributions can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit.

For 2003, the amount is the lesser of the following two amounts.

$1,000 (up from $500 for 2002), or
Your compensation for the year reduced by your other elective deferrals for the year.

For more information, see How Much Can Be Contributed on My Behalf? in chapter 4.

Simplified rules for required minimum distributions. There are new rules for determining the amount of a required minimum distribution for a year beginning after 2002. The new rules, including new life expectancy tables, have been incorporated into chapter 1 and appendix C. You can determine the amount of a required minimum distribution for 2002 using either the rules in this edition of the publication or the rules in the edition for use in preparing 2001 returns. The rules are explained at When Must I Withdraw IRA Assets? (Required Distributions) in chapter 1 of both editions of the publication.

Switch from election to take balance by the end of the fifth year. A designated beneficiary who has elected to take the entire balance in the account by the end of the fifth year following the year of the owner's death may be able to switch to receiving the balance over the beneficiary's life expectancy. For more information, see Switch from election to take balance by the end of the fifth year under Figuring the Required Minimum Distribution in chapter 1.

Statement of required minimum distribution. If a minimum distribution is required from your IRA for 2003, the trustee, custodian, or issuer that held the IRA at the end of 2002 must either report the amount of the required minimum distribution to you, or offer to calculate it for you. The report or offer must include the date by which the amount must be distributed. The report is due January 31, 2003. It can be provided with the year-end fair market value statement that you normally get each year. No report is required for section 403(b) contracts (generally tax-sheltered annuities) or for IRAs of owners who have died.