2009 Tax Strategy III – Types of Retirement Plans

This is my third posting of a daily tax tip about Traditional IRAs. An IRA can be a good vehicle not only to save taxes, but also to save for retirement. With Traditional IRAs, taxability of income is delayed to future years, normally when one retires.

Traditionally it has been assumed that the tax rates will be lower in the future, especially upon retirement. However, with the significant increase in the national debt, many tax professionals are beginning to question if that is still a valid assumption; taxes could increase in the future. The Taxpayer, with consultation with his/her CPA, should develop a philosophy on this and if it is determined that tax rates will increase in the future, a strategy of speeding up the taxability of income. Please feel free to call me if you have any questions.

Traditional IRAs

(1) Contribution Limit for 2009:
(a) Under Age 50: $5,000
(b) Age 50 to 70 1/2: $6,000
(c) If Taxpayer is an Active Participant, the contributions are phased out at Modified AGI:
 Single: $55,000 to $65,000
 Married Filling Joint [Each spouse if both participating – See (d) bellow)]: $89,000 - $109,000
 Married Filling Joint [With one participating – See (d) bellow)]: $166,0000 to $176,000
 Head of Household: $89,000 to 109,000
 Married Filling Separate: $0.00 to $10,000
 Delta Amount: Single $10,000 / Married $20,000
 Formula: [(“Delta Amt” – “AGI over threshold”)/”Delta Amt”] X Maximum

(d) Definition of Active Participant: When the Taxpayer or his/her spouse is participating in one of the following:
 Qualified Annuity Plan
 Tax-Sheltered Annuity
 Simplified Employee Pension (SEP)
 Government or Tax Exempt Origination Plan [special rule exempt members of the Armed Forces Reserves and Volunteer Firefighters]

(e) Definition of Modified AGI: AGI [Line 37 on 1040] added back
 Saving Bond Proceeds
 Adoption Expense
 Student Loan Interest Deduction
 Higher Education Expense
 Foreign Tax Deduction

(f) Victimized Employees Can contribute additional $3,000
 Victimized employee is -- the Employer matching of the 401(k) was in Employers stock and the Employer either filed bankruptcy or was indicted
(g) Contributions to be made by 4-15-2009
(h) Taxpayers who where in combat has 3 years to make the contribution

(2) Spousal IRA
(a) A spouse who has lower income or none can deduct the full amount of an IRA deduction using the other spouse income