IMPORTANT:  During at least one of our 2007 Year-end Update seminars, we failed to state that the $3,000 “catch-up” contribution available to some participants in a bankrupt employer-sponsored 401(k) replaces the $1,000 catch-up contributions for taxpayers who are age 50 or older.

BACKGROUND.  Beginning in 2007 (and for 2008 and 2009) participants in a 401(k) plan, whose contributions the employer matched at least 50% with employer stock, can make a “catch-up” IRA contributions of up to $3,000 in addition to the otherwise applicable maximum for individuals under age 50 if (1) the employer is a debtor in bankruptcy, (2) the taxpayer had been a participant in the 401(k) plan at least six months before the employer filed bankruptcy and (3) an indictment or conviction resulted from transactions related to the bankruptcy.

There is no age requirement with respect to the $3,000 "catch-up" contribution.  However, for those who are age 50 or older at the end of 2007, the up to $3,000 “catch-up” contribution is in place of (not in addition to) the $1,000 catch-up contribution that a taxpayer age 50 or older could have otherwise contributed.

In other words, for 2007, a taxpayer who qualifies, no matter what age, can make a regular $4,000 IRA contribution plus a catch-up contribution of up to $3,000.