Among the most dramatic changes is the first increase in the maximum amount you can contribute to an individual retirement account since IRAs were created. Beginning in 2002, the maximum annual contribution rises from $2,000 to $3,000 through 2004. The maximum rises to $4,000 in 2005 and to $5,000 in 2008. After 2008, the maximum will be adjusted for inflation in $500 increments.

Prior tax law income-limitation rules regarding the amount of deductible contributions you can make to an IRA, in the event you are covered by a qualified retirement plan, remain in effect. However, the increased contribution limits should especially help workers whose employer does not offer a retirement plan, since IRAs are a primary retirement vehicle for them.

The new law also gives lower-income taxpayers more incentive to contribute to an IRA. For each dollar they put in, up to $2,000, they receive a 50-cent tax credit on each tax dollar they owe, up to a maximum tax credit of $1,000 (you must have a tax liability in order to receive the credit).

Congress also added a "catch up" provision to those age 50 or over who haven't funded their nest egg as much as they wished they could have. Starting in 2002, anyone age 50 or over (regardless of how much they've funded their IRAs in the past) can kick in an extra $500 above the new $3,000 maximum, and in 2006 that catch-up amount rises to $1,000. However, these catch-up amounts are not indexed to inflation, and some observers complain that they are too small for those who haven't earned enough in the past.

Contribution maximums to 401(k) and 403(b) retirement plans, salary reduction SEPs (simplified employee pension), and state and federal 457 plans will rise to $11,000 in 2002, and climb $1,000 a year until they reach $15,000 in 2006, after which maximums will be adjusted for inflation in $500 increments. Maximum annual SIMPLE plan contributions will rise from $6,500 to $10,000 by 2006.

These plans also will have catch-up provisions, but in larger amounts than the IRAs. Workers 50 or over can add an extra $1,000 in 2002, and bump that up $1,000 a year until it reaches $5,000 a year in 2006.

A more technical change, but one that could help many workers, involves limits on contributions to defined contribution plans such as 401(k)s. Currently, the maximum contribution by an employer and the employee to an employee's plan is $35,000 or 25 percent of pay, whichever is smaller. This cap sometimes prevents employees from being able to contribute the maximum to a plan. Congress raised the 25 percent limit to 100 percent of pay, and the total dollar limit amount to $40,000.

Workers will also be able to claim the right to their employer's matching contributions faster than before. Under current law, an employer's plan can either delay vesting for a full five years, at which point the employer's contributions become fully vested, or up to seven years if 20 percent vesting is allowed each year. Now full vesting is shortened to three years, or six years under the 20 percent vesting schedule. This change will help workers who change jobs frequently.

Another change is that you can now create what essentially is a Roth IRA inside a 401(k) plan and fund it with after-tax contributions, subject to certain limits. Like a regular Roth, the earnings generally won't be taxed upon withdrawal in retirement. This allows you to fund a Roth through payroll deduction.

Workers changing from an employer with a 401(k) plan to one with a 403(b) or 457 plan will be allowed to roll their 401(k) assets over into the new plan, starting in 2002. You'll also be able to roll your regular IRA into your 401(k) plan. Before, the only time you could do that was if the IRA was exclusively holding funds rolled over from another qualified retirement plan. However, before rolling IRA assets into a 401(k), check with your financial planner to see if that's a wise move. Rolling everything into one plan may be convenient, but typically you have far more investment options within the IRA than an employer's retirement plan.