Tax Time! Get Your IRAs Funded

Featured in Beacon Hill Investment Advisory Newsletter (Spring ’09)
Tax Time! Get Your IRAs Funded
By John Beneviat

April Fools and Tax Day, too much fun for one month!

We know this information is not new to you but we hope the timing may motivate you to do things if you have not. If you have prepared and finalized your 2008 taxes and tax deferred investments- kudos to you!

2008 IRA contributions

2008 IRA contributions are due by April 15th. Make sure you speak to your advisor about how to specifically delineate that this is a 2008 contribution should you decide to make this contribution in the next few days. If you have already made a 2008 contribution during 2009, you may want to be sure it is specified as a 2008 contribution. In the event that you have been living under a rock for the past decade, IRA contributions are typically a no brainer decision, it’s a free way to get tax deferral.

A few rules of thumb:

Conventional IRAs: You receive an immediate tax write off, future gains are deferred (can grow tax free), and you are taxed on the withdrawals. These are beneficial if you believe your marginal tax rates will be lower when you start to withdrawal than they will be throughout your contribution period.

Roth IRAs: You do not receive a tax write off immediately, future gains are deferred, however, you are NOT taxed on the future withdrawals. Generally, the longer the funds will be invested, the more beneficial the deferral and tax free advantages of the Roth vs. the conventional IRA. A taxpayer who expects to be in a higher tax bracket at retirement than during the contribution period would favor a Roth.

A few notes applicable to both: The current limits for contributions are $5,000 per person. If you are over the age of 50 you may deduct an additional $1,000. You must have earned-income to contribute. You must begin making minimum withdrawals as of age 70 ½ (for a conventional IRA), and cannot take withdrawals without a penalty before 59 ½.

If you or your spouse are covered by an employer retirement plan you may not be able to deduct all contributions and should speak to an accountant.

There are many changes occurring this year that will significantly change the tax landscape in the future. I encourage anyone to review the changes this year prior to year end. In addition, these broad statements cannot cover everyone’s unique situation.

In addition, there’s no reason to wait to contribute for 2009! The quicker you do it the sooner you start the tax deferral!

John Beneviat has been a practicing accountant for 25 years as a Partner with Beneviat & Tortora located in Westerville, OH. John is available for questions or comments at 614-899-1280 x12.