Economic Growth and Tax Relief Reconciliation Act of 2001
The following is a summary of some of the major provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (the “Act”). The Act contains a “sunset” provision under which none of the provisions of the Act will apply for taxable years beginning in 2011, unless re-enacted by a future Congress before then.

Key Points to Keep in Mind
It is impossible to predict how these tax changes may affect giving to charities. A reasonable assumption, however, is that supporting Harvard and other charities outweighs tax considerations in most, if not all, gift decisions. Tax and income considerations largely play a role in determining how best to fund a gift.

There still are tax incentives to give to charity. With the changes in these incentives, some individuals may choose to give in different ways. It could be argued that these tax changes would eventually favor more lifetime giving. Gifts of highly appreciated property will continue to be an attractive option.

Remember, the estate tax repeal and other provisions of this Act must be re-authorized by Congress before 2011 to extend beyond then.

Individual Income Tax Rate Reductions
The Act contains a new 10 percent rate for a portion of taxable income that is currently taxed at 15 percent. This rate became effective in tax year 2001.

The current income tax rates will be decreased over six years. The new rates are summarized as follows:

Retirement Savings Provisions
It still is not possible to give retirement plan assets to charity during one’s lifetime without paying income taxes. However, charitable bequests funded with these assets remain attractive.

Beginning in 2002, the annual limit for employee contributions to a 401(k) or 403(b) plan is increased from $10,500 to $11,000, and then further increased by $1,000 per year until $15,000 is reached in 2006.

The annual IRA contribution limit is increased from $2,000 to $3,000 for 2002-2004; $4,000 for 2005-2007; and $5,000 beginning in 2008.

Both the 401(k)/403(b) and IRA contribution limits are further increased for taxpayers who have attained age 50. The 401(k)/403(b) elective deferral limits are further increased by $1,000 per year beginning in 2002 until $5,000 is reached in 2006. These additional contributions may be made regardless of any other limit applicable to these plans. The IRA limit is further increased by $500 for the years 2002-2005, and then $1,000 in 2006 and thereafter.

Beginning in 2006, employees will be able to deem certain 401(k) and 403(b) contributions as after-tax “Roth” contributions, avoiding tax on the investment buildup.

Estate, Gift, and Generation-Skipping Transfer Tax Provisions
The estate and gift tax rates and unified credit exemption amounts are modified as follows. (The unified credit is the amount an individual can transfer to heirs free of estate tax.)

Gift taxes are not repealed so that gifts to individuals during your lifetime above a total of $1 million will be subject to tax.

As part of this Act, after the estate tax is repealed in 2010, the law pertaining to stepped-up basis is also repealed. Currently, for appreciated property inherited through an individual’s will, the cost basis in the property is “stepped up” to the then fair market value. Thus, generally no capital gains tax is owed on the sale of that property. With the repeal, in general, there will not be a full “step up” so capital gains tax may be owed on the sale of appreciated property. (Appreciated property passing to a surviving spouse will be stepped up as much as $4.3 million; appreciated property passing to children will be stepped up by as much as $1.3 million.)

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