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Gov. Gray Davis signed sweeping tax conformity bills Wednesday night, making it possible for Californians to finally take full advantage of the enhanced savings options approved by Congress last summer.

The bills, which are retroactive to the beginning of 2002, allow individuals to save more for education and in a variety of tax-favored retirement plans, such as 401(k) plans and individual retirement accounts.

"It's a real win for California taxpayers," said Assemblywoman Ellen Corbett (D-San Leandro), who sponsored the measure. "They can put more money away for retirement and education, and they no longer need to be confused by the differences between state and federal law."

Assembly members said they had received thousands of phone calls over the last few months from constituents who were confused or angered because they couldn't take full advantage of a variety of tax changes that had been enacted last summer in federal law.

The governor's signature of dual bills--Corbett's and an identical bill sponsored by state Sen. Jack Scott (D-Altadena)--will put residents of the Golden State on an equal footing with people in other states where the federal law is already in effect.


Here's a summary of the changes in federal law that now are matched by California's tax code:

Retirement provisions:
* The limit on yearly contributions to 401(k) and 403(b) plans is raised to $11,000 in 2002 from the previous limit of $10,500.

* Contribution limits to 457 plans--a public employee defined contribution plan that's similar to a 401(k)--are hiked to $11,000 a year from $8,500.

* Annual contribution limits on IRAs are raised to $3,000 from $2,000.

* Maximum contributions to so-called SIMPLE retirement plans now can jump to $7,000 in 2002 from $6,000.

* Catch-up payments are allowed for those 50 or older. The catch-up provision allows those contributing to an IRA or SIMPLE account to put in an extra $500 this year, for a total allowable contribution of $3,500 for IRAs and $7,500 for SIMPLE accounts.
Those contributing to 401(k), 403(b) or 457 accounts can make $1,000 in catch-up contributions this year, allowing them to save a total of $12,000 annually in these accounts.

Education:
* Annual contributions to education IRAs are boosted to $2,000 from $500.

* Tax-free distributions from 529 plans are allowed when the money is used for education. The 529 plans are state-sponsored education savings accounts that offer no upfront tax deductions, but allow investment earnings to grow on a tax-deferred basis.
In addition, if the money ultimately is used to finance education, withdrawals will be exempt from federal and state income and capital gains taxes. Investment earnings were previously taxable when the money was withdrawn from the accounts.

* Education IRA money can be used to finance private elementary and secondary school expenses.

* Individuals can contribute to an education IRA and a 529 plan in the same tax year, which could not be done under previous tax law.


Whole Story:
http://www.latimes.com/business/la-000033028may10.story?coll=la%2Dheadlines%2Dbusiness

Unfortunately, the LA Times has started up a registration policy, but it's free, and it didn't take much time for me to set it up.

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