IRA CONTRIBUTIONS INCREASE

Winter, 2009

The maximum contribution to Individual Retirement Accounts is $5,000.  If you are 50 years of age or older you can contribute $6,000.  Remember, you must have earned income equal to or greater than your contribution.  This is true for both Roth and Traditional IRA’s.

Eligibility to contribute to a Roth IRA starts to phase out at $166,000 for married couples and $105,000 for single taxpayers.  If your adjusted gross income exceeds $176,000 for married couples or $120,000 for single taxpayers, you are still eligible to contribute to a traditional IRA.

Traditional IRA’s can be deductible or non-deductible.  If you are not a participant in a company retirement plan, then contributions to traditional IRA’s are deductible.  If you are a participant in your company’s retirement plan, your contribution could be deductible, partially deductible or non-deductible.  Single taxpayers can deduct contributions with up to $55,000 agi (adjusted gross income), partially deduct with between $55,000 to $65,000 agi, and is non-deductible with over $65,000 agi.  Married filing jointly can deduct contributions with agi (adjusted gross income) up to $89,000, partially deduct with between $89,000 to $109,000 agi, and is non-deductible with over $109,000 agi.  If only one spouse is an active participant in a company retirement plan, then the non-participant spouse can make a deductible contribution with up to $166,000 of joint adjusted gross income, partially deduct with agi between $166,000 to $176,000, and is non-deductible with over $176,000 agi.

Non-working spouses can make contributions based on the working spouses income.  In other words, the earned income rule is waived for the non-working spouse.  All other rules discussed above still apply. 

In most cases the Roth IRA is the IRA of preference, mainly because the income is tax free if withdrawn after fifty-nine and one half years of age and the Roth IRA is at least five years old.  Also, it is not mandatory to start withdrawing at seventy and one half years of age. Contributions can be made after seventy and one half.  Also, it is an excellent estate planning asset as it is non-taxable to the heirs. 

Whether or not you are eligible for a Roth IRA or whether or not you are eligible for a traditional deductible IRA, they are still great investment vehicles.  The Roth IRA can provide tax free income, the traditional IRA can provide tax savings as well as deferring taxes on income and finally the traditional non-deductible IRA can provide the deferral of taxes on income.  Every eligible taxpayer should take advantage of this benefit provided by your federal government. 

If you have any questions regarding IRA's, please give us a call.  Also, we provide weekly tax tips on our website.  Go to www.grstarbuck.com and click on Links and Tax Tip of the Week.