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FDIC Consumer News - Summer 2001

Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

New Tax Law Enhances Savings Programs for Retirement, Education

The tax cut signed into law by President Bush on June 7, 2001, includes provisions that are of significant interest to financial institution customers, including new incentives for Americans to save for retirement and education. Here are some highlights.

Retirement Savings: Contribution limits for Individual Retirement Accounts (IRAs), including those for Roth IRAs (which differ from regular IRAs primarily because the earnings may be tax-free), will gradually rise from the current $2,000 a year to $5,000 a year by 2008. Contribution limits also are increasing for employer-sponsored retirement plans, such as 401(k) accounts. For example, the new law gradually raises the maximum annual contribution to 401(k) accounts from the current $10,500 to $15,000 in 2006. Also, taxpayers at least 50 years old can make extra payments into IRAs, 401(k)s and other retirement accounts, depending on the plan, up to an additional $1,000 in 2002, and eventually up to $5,000 in 2006.

Education Savings: Earnings on Education IRAs, which are accounts established to pay for a child or another beneficiary to attend school, generally are exempt from federal taxes if they don't exceed the student's education expenses. Under the new law, the maximum contribution will increase from the current $500 to $2,000 per year starting next year, and distributions are tax-free, not just tax-deferred. For the first time, employers will be permitted to contribute to an employee's Education IRA, up to the statutory maximum dollar amount. In addition, the proceeds from an Education IRA also will become available to pay for elementary and secondary school tuition, no longer only for the costs of higher education.

Student Loans: Currently, you can deduct up to $2,500 of interest expenses on student loans. Starting in 2002, there will be no limit on the amount you can deduct if your income is below set levels ($55,000 for an individual return and $100,000 for joint filers).

In an unusual twist, these and other tax breaks are scheduled to expire in 2011 and to be replaced by the "old" tax rules. "This quirk in the tax law may add some uncertainty to your long-term tax planning, but even so, there are still significant benefits you can take advantage of for at least the next several years," says Rick Cywinski, an FDIC tax policy manager in Washington. "And while there's no guarantee, it's very possible that between now and 2011 Congress will extend or even enhance these new tax-savings provisions."

Cywinski and other FDIC officials suggest that you consult with your tax preparer, financial planner or another trusted advisor if you have questions about the tax law or what it could mean for your finances.

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Last Updated 01/22/2009 communications@fdic.gov