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Employee matters

August 28, 2001

This column by Susan Adams of Employee Compensation and Benefits will address campuswide employment issues. Send your questions to: wisweek@news.wisc.edu.

Does the new tax law affect the amount I can contribute to the Tax Sheltered Annuity Program in 2002?
Yes. The Tax Reconciliation Act signed into law in June allows an increase from $10,500 to $11,000 in 2002. Thereafter, the limits will increase each year in increments of $1,000 until 2006. From 2006 through 2010, the yearly increment increases will be $500.

What is the new salary percentage contribution limit?
The act eliminated the 25 percent salary contribution limit. In 2002, you will be able to contribute up to 100 percent of your salary as long as you don’t exceed the maximum yearly amount. So if your 2002 salary is $11,000 or less, you may contribute your entire salary.

Does this affect both my TSA and Deferred Compensation plans?
Yes. Previously if you participated in both, the maximum amount that you could contribute was limited to the deferred compensation maximum ($8,500 in 2001). The act provides for separate maximums. You may contribute the yearly maximum to each.

Is there still a “catch-up” provision for contributions to TSAs?
Yes. In addition, a second provision was added. The new provision allows employees who are age 50 and older by the end of the tax year to contribute above the maximum yearly limits. The additional amounts are indexed identically to the maximum yearly increases through 2010. Past contributions are not considered, as was the case with the earlier “catch-up” provision.

Are there any other significant changes that affect UW employees?
There are several:

  • Retirement accounts are now more portable. The “rollover” provisions (tax-free transfer of money when employment is terminated) are more generous. The new law allows assets in 401(k), 403(b) and 457 plans to be moved into each other. IRAs may also be rolled into these employer-sponsored plans.
  • Lower-income individuals who are contributing to an IRA or an employer- sponsored retirement plan (i.e. the UW TSA Program) may be entitled to a tax credit of 10 percent, 20 percent or 50 percent of the first $2,000 of contributions made each year. The credit percentage is determined by filing status and adjusted gross income. The credit reduces tax liability. However, if there is no tax liability, the credit does not apply.
  • The maximum that may be contributed to a traditional or Roth IRA has been increased. For 2002, the limit is $3,000 and will remain at $3,000 through 2004. From 2005-07, the maximum will be $4,000. In 2008, it will be $5,000.

Where can I get more information?
TSA vendors and Wisconsin Deferred Compensation will hold educational sessions at the UW Benefits Fair Thursday, Oct. 11, at Memorial Union. Check http://www.bussvc.wisc.edu/ecbs/employee_seminars.html for times.