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Tips for 2002 tax returns
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February 15, 2002: 10:37 a.m. ET
Experts say it's not too soon to start thinking about your 2002 tax return.
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NEW YORK (CNN/Money) - Now's the time to start thinking about your 2002 return. Most of us haven't yet filed our 2001 tax returns, but experts say it's not too soon to think about ways to save this year.
"I think it's important to look at taxes all the time," said Don Weigandt, director of wealth advisory at J.P. Morgan Bank. That means seizing the tax-break opportunities that kick in this year. Here are some good moves to make now.
- Take advantage of the new higher limits for your 401(k), 403(b) or 457. This year you can stash up to $11,000, up from $10,500 ($8,500 for 457s). Workers older than 50 can contribute up to $12,000. If you're self-employed, you can now put up to $7,000 in a Simple 401(k) or Simple IRA, a $500 increase from last year.
- Shelter additional investments in an IRA. You are able to contribute up to $3,000 to a Roth IRA or traditional IRA this year; if you're over 50, you can make that $3,500.
- Contribute to a 529 college savings plan. Many states give residents a tax deduction for 529 contributions, and distributions are tax-free if used for qualified higher-education expenses. Parents who used to keep their kids' college funds in a Roth IRA should open 529s instead this year; with a Roth, earnings taken out for college are taxable. With a 529 there are no income ceilings to qualify. For more details on state plans, click here.
- Shelter more college funds. Now you can invest up to $2,000 in a Coverdell Education Savings Account, which can be used for your kids' elementary, secondary and college education, and you can open both a Coverdell ESA and a 529 account in the same year. Distributions are tax-free when they are used for qualified education costs.
- Forget the kids -- you can go back to school. Starting in 2002, you can deduct $3,000 of higher education costs, including qualified professional courses, from your taxes. To get the full deduction, single filers' adjusted gross income must be less than $65,000; for married couples, the AGI limit is $130,000 for the full break. The deduction amount and AGI limits go up in 2004. And don't forget the $1,500 hope or $1,000 lifetime college credit. Married couples with an AGI up to $82,000 can grab the full credit; single filers must have an AGI of less than $41,000. The hope credit is good for the first two years of college. You can take the lifetime credit, which rises to $2,000 in 2003, for school beyond that. 
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