CU Times Correspondent-At-Large WASHINGTON – The impact of the new individual retirement account rules which allow investors to contribute an extra $1,000 annually are competing with laws in several states. With passage of the Economic Growth and Tax Relief Reconciliation Act of 2001, investors can now contribute up to $3,000 to an IRA in 2002 – up from the $2,000 maximum in 2001. Yet, at least 11 states have laws that conflict with the increased federal savings limits for 401(k)s, IRAs and other tax-favored savings plans. Tax experts say many people who are saving for retirement could face state tax consequences for taking advantage of benefits such as higher maximum deferral limits or for rollovers into public sector retirement plans. Some public employer plans may be unable to modify their plans to allow for these benefits until legislative action is complete. It would behoove credit unions in the affected states to educate members about the potential tax conflicts and press legislators to adopt the federal standards said Duane Meek, president of Nationwide Retirement Solutions (NRS), the Nationwide Financial subsidiary that provides deferred compensation programs to public employees. "This legislation is the most significant pension reform we have seen in many years, and it is our position that all employees should be able to take full advantage of it as they plan for retirement," Meek said. More than 42.5 million American households now own IRAs, holding $2.4 trillion for retirement, according to the U.S. Treasury Dept. Wisconsin is one of those states that has pledged to embrace the new limits by including provisions that would bring the state in line with federal law. Gov. Scott McCallum is including in his budget reform bill those provisions and is confident legislators will pass the bill which is estimated to save Wisconsin workers, retirees and other taxpayers $33 million in state taxes through June 30, 2003. Without the changes, McCallum said in a news release it is possible that some retirement plans could be deemed "nonqualified" under state law if they followed the new federal limits. Under the new IRA rules, Americans would be able to contribute up to $3,000 in 2002 and higher amounts in future years to both traditional and Roth IRAs. The old maximum contribution limit was $2,000. Contributions to education IRAs also increase from $500 annually to $2,000. Higher contribution limits up to $11,000 this year also would be allowed for 401(k)s, deferred compensation plans and other retirement pension Some tax experts say all states will probably comply with the federal limits by the end of the year. "Legislators know there's not always going to be absolute conformity between federal and state laws, but I believe most states will comply," said Ed Slott, a certified public accountant and publisher of Ed Slott's IRA Advisor. Slott told Credit Union Times that there are several states that don't tax IRA contributions including Florida, Nevada, South Dakota, Texas, Wyoming and Washington so the federal provisions automatically apply. He advises checking with the state's department of revenue or a tax advisor to avoid any conflicts. According to Nationwide Retirement Solutions, states that have not conformed with the new IRA limits include: California, Georgia, Indiana, Iowa, Kentucky, Maine, Massachusetts, North Carolina, Oregon, South Carolina, Wisconsin. [email protected]