New Year offers new opportunities

LEE C. EISINBERG
Special to Jewish News

Increase 401(k) contributions

• A 401(k) is one of the best investment vehicles available to save for retirement. Earnings grow tax-deferred, which means individuals accumulate money faster than they would from an investment they pay taxes on every year.
  
• Another important point is that individuals typically make 401(k) contributions with pretax dollars, so their annual taxes will be reduced.
  
• The maximum amount of pretax income that an individual can set aside in these workplace plans rises to $11,000 in 2002. And people who are 50 or older by year-end 2002 can set aside an additional $1,000 for a total of $12,000, as part of a catch up plan for older savers. The contribution limits will continue to rise and, in 2006, will be $15,000 for younger workers and $20,000 for those 50 and above. If you haven't been as diligent with your retirement savings, these catch-up provisions can help you make up for some lost time.
  
  Increase IRA contributions
  
• The maximum an individual can set aside in a traditional or Roth IRA rises to $3,000 from $2,000 staring this year. And there is a further $500 allowed for people 50 or older. The amounts will grow over time. In 2008, it will be as high as $5,000 for younger workers and $6,000 for those 50 or older.
  
  Take advantage of the educational tax credit
  
• Some states offer an educational tax credit to individuals who make a contribution to an educational institution, which may be applied to this year's state tax liabilities.
  
• An individual can effectively "direct" their tax dollars to the institution of their choice and receive up to 100 percent of their money back.
  
  Invest salary increases and bonuses
  
• If an individual's regular income is enough to meet their living expenses, they should consider investing their bonus or salary increase. By putting this money to work for them, they'll speed up their progress toward long-term financial goals such as retirement, putting a child through college or purchasing a dream home.
  
  Increase charitable giving
  
• Tax rates are scheduled to go down this year. Individuals should consider maximizing their charitable giving to receive a better tax advantage 2002.
  
• Charitable giving is a powerful financial tool. It provides double satisfaction - helping a worthy cause and possibly lowering your tax bill.
  
  "Saver's Tax Credit" will help lower-paid workers save for retirement
  
• The retirement benefit - enacted earlier this year by Congress as part of its big tax cut package - will help lower-paid workers next year who contribute to a company retirement plan or IRA.
  
• The credit is a nonrefundable income tax credit for certain taxpayers with an adjusted gross income of less than $50,000.
  
• The maximum credit is 50 percent of the individual's retirement plan or IRA contribution, up to $1,000. This amount doubles for couples.