New Tax Law Adds Options To Variety of Saving Plans.

THE new tax law is stuffed with welcome changes to America's retirement plans. My desk is strewn with summaries listing all the new choices that savers might have.

One problem: Almost everything is optional and you don't get to choose. It's up to your company to decide what, if any, changes it wants to make.

Furthermore, as the law now stands, all of the new plan and all the new rules end abruptly in 2011!

"That's incredible provision," says Jacob Friedman, head of the tax department at the New York law firm Proskauer Rose.

Friedman doubts that most employers will undertake the cost of analyzing all the new plans and changing their current plan documents until they feel more certain that the law will last.

Even then, the new plans are so complicated that Friedman will be urging his clients not to adopt them. "Employers are still amending their plans from the last set of changes, passed four years ago," he said. "As things grow more complex, they become less useful."

Nevertheless, a few of the changes are mandatory. For example:

* Individual Retirement Accounts. You'll be able to make larger contributions to your IRA.

For years, annual IRA contributions haven't been allowed to exceed $2,000 ($4,000 for couples). But starting in 2002, you'll able to save up to $3,000 year. That ceiling eventually rises to $5,000 in 2008.

If you're 50 and up, you can add an extra $500 next year and $1,000 starting in 2006. That takes you to a maximum of $6,000 a year ($12,000 for couples).

These changes apply to both traditional IRAs and Roth IRAs.

Roths look especially interesting. You could sell your shares in a taxable mutual fund and move that money into a mutual fund inside a Roth. Your fund company will tell you how to do it. With a Ruth, future gains can be tax-free.

Naturally, these new ceilings are relevant only for people who can afford to save more than $2,000 at time. Around half of the savers with traditional IRAs contributed the maximum in 1997, according to a U.S. Treasury estimate.

* Vesting, employers will have to provide faster vesting for any matching contributions they make to their workers' retirement plans. This helps younger workers who migrate from job to job.

To "vest" in a plan means to come into full possession of the money. You can take vested money with you when you leave the job.

You are always vested in your own contribution to a 401(k). But if your employer matches your contribution, you usually have to wait before those matching funds are fully yours.

Under the new rules, employers have two choices: Vest you gradually in the money, over your first six years at work. Or vest you in full after just three years, while giving you nothing if you leave earlier.

Today, it takes seven years to vest gradually or five years all at once.

Faster vesting is supposed to take effect next year (or the next plan year, where unions are involved).

* Rollovers. If you leave the job and your 401(k) is worth between $1,000 and $5,000, companies currently force you to remove the money from the plan. You can find your own IRA or simply pocket the cash.

Under the new law, employers will have to help you save by providing IRA options even for these small amounts.

Of the many other reforms Congress proposed for retirement savings, virtually all are optional. Here's what your employer might or might not do:

* Provide higher company contributions to worker plans.

* Make plans portable so you can combine different types of savings into a single pot. Today, workers are often forced to manage a medley of different types of plans - especially if they've worked in both the public and private sector.

* Set up retirement plans in small businesses for workers who never had one before. But whether the owners will really offer their workers more remains to be seen.

Easier Contributions to Retirement Plans

As part of the new tax law, new types of retirement plans will potentially be available. More liberal ways of figuring tax-deductible contributions will be allowed. To encourage employers - especially small ones - to provide these new carrot. Extra benefits will be available for the higher paid.

Since all the changes to retirement plans officially last only for 10 years, in 2011, every provision in new law, including the tax cuts, will officially be repealed. It hides the tax cut's excessive size over the long term.

In real life, parts of the law will go and parts will stay. employers will want to know what stays before they spend time and money changing the retirement plans they have.

Among the new provisions that employers may or may not - offer to the troops:

* 401(k) plans. Maximum annual contributions could rise gradually to $15,000 in 2005, from $10,500 today. The total contribution, including what your employer adds, could run as high as $40,000, from $30,000 now. In most cases, this would affect only higher-paid employees who could afford to put the maximum aside.

The new law also, makes it possible for certain lower-paid workers to put more money into their retirement accounts.

* Small-company plans. Smaller firms often don't have retirement plans at all. When they do, business owners often choose the ones that give themselves the most and their employees the least. The new law gives business owners a number of interesting options to consider. They can do profit-sharing plans that let them save a higher portion of their own pay. They can leave their own savings unchanged but give their employees less.

* 457 plans. You mostly find these in state and local governments. The new law allows (not requires) higher contributions and more flexibility when you withdraw the money. On leaving a job, you could roll your money into an IRA If you're in a 457, watch for information in your plan's newsletter.