Highlights of the Tax Relief Act of 2001

Overview:

			The Tax Relief Act of 2001 represents the largest tax cut package in the last 20 years.
			It will reduce marginal federal tax brackets over time to 10%, 15%, 25%, 28%, 33%, and 35% respectively.
			Beginning in 2005, the standard deduction for married couples will gradually increase to twice that of a single taxpayer.
			The child tax credit will gradually double to $1,000 per child over ten years and apply it against the alternative minimum tax credit.
			It will reduce the marriage penalty by changing the standard deduction and marginal rate brackets.
			It will affect almost every taxpayer starting with the upcoming refund check of 2001.

Retirement Benefits:

			IRA contribution for both Traditional and Roth are increased from the current $2,000 per person to $3,000 starting in 2002, $4,000 in 2005 and 5,000 in 2008.
			Individuals over age 50 will be allowed to make "catch-up" contributions to their IRAs and other retirement plans that permit employee salary deferrals (e.g. 403(b)s, 457s).
			Retirement preparation has been made easier by allowing greater pension portability. It will be easier to transfer or roll money over from one retirement plan to another, as well as between IRAs and employer-sponsored retirement plans. The annual retirement plan (e.q., 401K) increase by $1,000 each year until it reaches $15,000 in 2006.
			The annual retirement plan (e.g., 401 K) employee salary deferral limit is raised from the current $10,5000 to $11,000 in 2002, and will increase by $1,000 each year until it reaches $15,000 in 2006.

Education Benefits:

			The annual limit for contributions to Education IRA has been increased from $500 to $2,000, starting in 2002 and contributions are allowable to both an Education IRA and 529 plan for the same beneficiary in the same year.
			Distributions from qualified tuition plans made after December 31, 2001 and used to pay for qualified higher education expenses will no longer be subject to federal income tax.
			Deductibility for student loan interest is simplified and expanded.
			A new above the line deduction has been made available for the costs of higher education.

Estate Planning Information:

			Instead of repealing the estate tax under the new law, it will be phased out over the next nine years, be repealed in 2010 and automatically reinstated in 2011.
			The unified credit effective exemption amount for both estate and gift tax purposes is currently $1 million for 2002.
			The exemption from generation skipping transfer (GST) taxes is currently $1,060,000.
			The estate and GST tax exemptions will gradually rise to $3.5 million by 2009.
			The gift tax exemption remains constant at $1 million.
			In 2010, the estate and generation skipping transfer taxes are repealed.

Interested in learning more? Contact your local Farmers agent to find out more about how this new law impacts you.

Farmers does not provide tax or legal advice. You should review your specific situation with your tax advisor for information regarding, or issues concerning, the tax implications of making a particular financial decision or taking any other action.

Form# FNWL020031

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