EGTRRA and Catch-up Contributions
to Retirement Plans
The federal Economic Growth and Tax Relief Reconciliation Act of 2001 made a number of technical and substantive changes to the pension and retirement provisions of the Internal Revenue Code. The substantive provisions are generally designed to increase, over time, the amounts that individuals can voluntarily contribute to various retirement vehicles such as IRAs, 401(k) plans and other deferred arrangements. In other words, employees are able to contribute a greater pre-tax amount to their 401(k), 457, 403(b), SIMPLE and SEP deferred savings plans.
Presently, for New Jersey income tax purposes, a taxpayer does not have to include in gross income amounts contributed by an employer on behalf of and at his election to a trust which is part of a qualified cash or deferred arrangement which meets the requirements of section 401(k) of the Internal Revenue Code. N.J.S.A. 54A: 6-21. Therefore, a taxpayer may have an increased amount of income that can be deferred from taxation in New Jersey as a result of the increase in the amount individuals can contribute to their 401(k) plans under the new provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001.
Concerning plans other than a 401(k), since only contributions made to 401(k) deferred compensation plans are specifically excluded from gross income under New Jersey law, the amendments to federal law regarding income tax treatment of the other qualified deferred compensation plans do not correspond to what New Jersey currently provides under N.J.S.A. 54A: 6-21. Thus, the Economic Growth and Tax Relief Reconciliation Act of 2001 has no effect on the New Jersey income tax treatment of the other deferred compensation plans.