The new tax law recently signed by President Bush can be read like a confessional for procrastinating Baby Boomers. If you’ve been putting off saving for your retirement, take heart because the new law is going to help you. But it can only help if you start saving.

For those over 50 that have put off starting, the new law has established “catch-up provisions” that allow you to contribute more to IRA’s and 401(k)-type savings plans. No matter your age, elective contributions to 401(k), 403(b) and SEPs will gradually increase from the current maximum of $10,500 to $15,000 by 2006. But the bonus for Boomers is that they may contribute an additional $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005 and $5,000 in 2007. After 2007 the catch-up provision will be indexed to inflation. The catch-up provisions also apply to IRA’s, SIMPLE’s, and government 457 plans.

If you own a business, there are stronger incentives than ever to start a plan for you and your employees.

Surveys show some of the biggest hurdles to starting a retirement plan are the administrative costs and regulatory burdens. For companies with less than 100 employees, tax credits have been established to cover up to 50 percent of startup and administrative costs for the first three years of a new plan’s operation (up to $500 annually). Additionally, the burdensome top-heavy rules will now be satisfied by safeharbor 401(k) matching contributions. Previously, if a plan was top-heavy a 3 percent contribution was required for all eligible employees if owners wanted to save for themselves too.

A key element that will help owners of any size business is the change in deduction limits for employer contributions. Current law limits tax deductions to 15 percent of employee compensation. Effective in 2002, the limit is increased to 25 percent. In addition, compensation used for the limit calculation can include elective deferrals. So, not only will a company be able to use a higher percentage of compensation, more compensation can be used. A double benefit.

Putting all of these modifications and increases together, the limit on a retirement plan participant’s total deposits will increase from $35,000 for 2001, to $40,000 in 2002. But best of all, the $35,000 had an additional limitation of 25 percent of income, whichever was less. This percentage limitation will increase to 100 percent in 2002. For those who are in semi-retirement, or can live off other income, they can now save up to 100 percent of their wages if they wish (capped at $40,000, of course).

Looking further down the road, starting in 2006, the new law allows 401(k) and 403(b) plans to incorporate Roth-type contributions.

Whether you are rapidly approaching retirement, own a business with or without a retirement plan, or in any stage of your work life, these new retirement plan changes benefit you. Consult with your tax or retirement plan professionals to maximize the new law to your benefit.

(Editor’s Note: Marty is President of Compensation Consultants, Inc., a Port Orchard firm that provides third party administration and consulting services for retirement plans to over 500 businesses. He may be reached at (360) 871-7727.).