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Andrew
Reply with quote  #1 

Last month, the IRS announced the cost of living adjustments applicable to the various retirement plan limitations.  Unfortunately, the bulk of the retirement savings limits will not increase from 2007. 

Don't Go Changin'

Most working professionals have access to a 401(k) plan or a 403(b) plan at work.  Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred.  Like 2007, you can contribute up to $15,500 into a 401(k) or 403(b) plan through salary deferrals in 2008. 

Anyone 50 or older by December 31, 2008 can contribute an extra $5,000 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $20,500.  That is the same as what was allowed during 2007.

Many smaller employers offer their staff access to SIMPLE/IRAs instead.  SIMPLE's work just like 401(k) plans, which means it's up to you to fund the bulk of this retirement savings account through salary deferrals.  For 2008, the maximum contribution into your SIMPLE remains at $10,500.  Anyone 50 or older by December 31st can sock away an additional $2,500 in 2008, for a total annual contribution of $13,000, unchanged from 2007. 

Small Change

Are you self-employed?  Each year, you can contribute up to 20% of your net self-employment income into a SEP IRA.  The maximum contribution into your SEP IRA for 2008 has been increased by $1,000, up to $46,000.

Solo 401(k)'s are an attractive alternative to many sole proprietors and business owners with no full time employees who work more than 1,000 hours per year besides a spouse.  If you don't have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan makes it easier for you to hit next year's max of $46,000.  If you're 50 or older, your maximum contribution into a Solo 401(k) jumps to $51,000, due to a "catch up" contribution of $5,000 allowed with these types of plans.

The IRS also announced that the maximum amount of wages and net self-employment income that you can use to determine certain retirement plan contributions has increased to $230,000 for 2008, up from $225,000  in 2007.

Increase to IRAs

Don't forget about IRA's.  Thanks to the 2001 Tax Act, the amount you and your spouse can each contribute into an IRA is scheduled to increase by 25%, from $4,000 in 2007 up to $5,000 in 2008.  Anyone 50 or older can also contribute an extra $1,000 into their IRA, increasing the total allowable contribution to $6,000.  You have until April 15, 2009 to max out your IRA contributions for 2008.

There is also good news for people looking to contribute to a Roth IRA in 2008.  The amount you can earn and still contribute to a Roth has increased by $3,000 for married couples and by $2,000 for single individuals, as follows:

 Single IndividualsMarried Couples
Phase-out begins$101,000$159,000
Phase-out ends$116,000$169,000

If your income is too high for a Roth, don't forget that the rules changed last year, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA.  This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts.  For more information, please check out the article, The Re-Emergence of Non-Deductible IRAs, available on our March 2007 Newsletter.

And if you're married and your spouse isn't covered under either an employer sponsored or self-employed retirement plan during the year, the phase-out range for your spouse making a deductible IRA contribution has increased to $159,000 - $169,000, which is identical to the Roth IRA phase-out limits.

Monthly Budget

Most people won't be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month.  With 2007 winding down, now's the time to start thinking about resetting your monthly retirement savings goals for 2008.

2008 Maximum Retirement Account Contributions


Retirement Savings Option
 
Under the age
 of 50
50 or older by December 31st

401(k) or 403(b)
 
$15,500
($1,291.67/month)
$20,500
 ($1,708.33/month)

SIMPLE IRA DEFERRALS
 
$10,500
($875.00/month)
$13,000
($1,083.33/month)

SEP IRA
 
$46,000
($3,833.33/month)
$46,000
($3,833.33/month)

Solo 401(k)
 
$46,000
($3,833.33/month)
$51,000 or
($4,250.00/month)

IRA
 
$5,000
($416.67/month)
$6,000
($500.00/month)

Dennis
Reply with quote  #2 
I am all for taking advantage of every retirement vehicle that is offered especially now that I am 55 yrs old with a 8-10 yr plan until retirement.
My question is how much can I contribute to all of them annually?
My employer is adopting a Roth 403b as well as the regular 403b.
This seems to me to be a good thing for high income people who get phased out of the Roth IRA because they exceed the income limit so withthe Roth 403b they culod go 505 403b & 50% Roth to the max of $20,500 for my age BUT my wife and I do not exceed the income limits and I believe I would actually penilize myself if i contribute to the Roth 403b by limiting myself to the $20,500 combination of the two plans when as I stand right now staying with the regular 403b I can contribute $20,500 annually as well as making a $6,000 contribution to a Roth IRA. Am I wrong or right? My wife is 55 so we both can do $20,500 to our 401k/403b and $6k each to a Roth which equals..
$53,000 annually combined. If I am right we limit ourselves to the $41,000 limit of the Roth 403b.
Thanks
Dennis
Andrew Schwartz CPA
Reply with quote  #3 
For 2008, you and your wife can each contribute up to $20,500 into your 403b plans through salary deferrals.  If you contribute some money to a Roth 403b and some money to the regular 403b, the combined total for your salary deferrals is still capped at $20,500 per person over the age of 50.

You are also correct that you can each contribute up to $6k into your Roth IRA, assuming your income falls below the applicable phase-out of $159k-169k.

So that's a total of $53k that you can put away into these tax-advantaged retirement savings accounts.  That's not too shabby.

To find out what your retirement accounts will REALLY be worth when you retire, check out our online tool available at:

http://www.findagoodcpa.com/retire_calc/index.html


iloveoon
Reply with quote  #4 
One is always on a strange road, watching strange scenery and listening to strange music. Then one day, you will find that the things you try hard to forget are already gone.
-------------------------
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