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Tax relief for 2002
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December 31, 2001: 4:05 p.m. ET
New federal law means a late holiday gift from Uncle Sam.
By Staff Writer Meghan Collins
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NEW YORK (CNN/Money) - As the new year rings in at midnight, more than a few Americans will be toasting "bottoms up" to an economy that analysts say may have bottomed out and could be on the rise.
Most can't wait to begin 2002 with a fresh start -- coupled with hopes for a better fiscal year. Something to kick it off? The Tax Relief Act of 2001 takes effect Jan. 1, helping taxpayers keep more of their hard earned dollars.
Give more
If you've always wanted to give more to family and friends, 2002 could be the year.
In years past, a financial gift of $10,000 was the most you could give on a tax-free basis. To ring in the new year, givers can add another $1,000 free from the federal government's grasp.
For more on tax breaks for giving to minors, check here.
In addition, the slow death of the estate tax begins in 2002 -- meaning that when an estate changes hands it won't be as painful. In 2002, the exemption jumps to $1 million from $675,000 and the highest tax rate falls 5 percent to 50 percent.
Save more
Saving for the future is among the most challenging of financial pursuits, requiring both discipline and sacrifice. And it's not every day Uncle Sam lends a helping hand.
Starting in 2002, however, earnings from state-sponsored 529 college savings plans or prepaid tuition contracts become tax-free upon withdrawal. That holds true only if the dollars are used for qualified education expenses.
(Learn more about the pros and cons of 529 plans.)
In addition, the new tax laws include a deduction of up to $3,000 for education to help those who earn too much to qualify for other credits. The deduction applies to joint filers with combined incomes of up to $130,000 and singles with earnings up to $65,000.
Also, the contribution limit for Coverdell Education Savings Accounts increased from $500 to $2,000 -- another place to slice tax payments.
Check here for more on new education tax savings.
With the clink of those champagne glasses also comes an increase in the amount you can contribute to retirement funds. For both traditional and Roth IRAs, the limit jumps up $1,000 to $3,000, and for those 50 years and older, the cap is $3,500 -- an additional $500 annually.
For retirement saving fans the cheering could hit an even higher decibel level. The limit for 401(k), 403(b) and 457 plans jumps to $11,000 in 2002 and workers over 50 get an even better break -- their contribution limit climbs to $12,000.
For more on retirement tax breaks, check here.
Keep more
Who doesn't want to keep more of what they earn, be it from a hard day on the job or the sale of an investment?
This year, the government dropped personal income tax rates by half a percentage point for everyone above the 15 percent tax bracket.
Check here for more on the change in personal income tax levels.
In addition, a capital gains tax reduction will continue to help those who buy and hold securities for several years. The law, which took effect in 2001 reduced the rate to 18 percent from 20 percent for taxpayers who purchased investments, such as mutual funds or fixed-income securities, after Jan. 1, 2001, and held them for at least five years prior to reselling them.
Read more about capital gains taxes here.
Be it a break in taxable earnings or greater flexibility in reducing the size of your estate, all Americans should find more money in their wallets as they welcome 2002. 
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