Maximize Taxable Retiree Income in 12% Bracket

IMHO, the 12% tax bracket is a sweet spot for taxable retiree income.  As a retiree, I could partially manage whether to receive taxable income or not.

Here was my thinking:

• 12% is a terrifically low tax bracket. For reference, I was in the 30% tax bracket at an entry level salary when I first started working in the early 80s.  This tax bracket will be available at least until 2030.
  
  
• The next bracket is 22% which means almost a 100% increase in one's marginal tax rate. If future income can be pulled forward  to the 12% tax bracket and avoid being in the 22% tax bracket in the future, that is a tremendous savings.
  
  

Here are some examples to take advantage for this "tax bracket arbitrage:"

• Do a Roth conversion, especially if one has traditional IRA accounts that will have current or future RMDs that may put one in the 22% tax bracket.  This will allow retirement investments to continue to grow tax free and pay 0% taxes when withdrawn in the future.
  
  
• Realizing long term capital gains that will be taxed at 0% instead of 15% or higher in the future.


• Invest in ETFs or stocks that pay qualified dividends that will be taxed at 0% instead of 15% or higher in the future.
  

Paying 0% or 12% tax on income now is definitely better than paying 15% or 22% in the future on the same income.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial nor tax advice. Please consult a professional advisor.

Copyright © 2025 Achievement Catalyst, LLC

House Votes to Increase RMD Age

On Tuesday, the House passed Secure Bill 2.0 which includes raising the RMD, requirement minimum distribution,  age from 72, in steps,  up to 75.   The RMD effectively causes retirees to take taxable distributions, whether they need the money or not.  It effectively causes retirees to pay higher taxes while reducing the amount of saving in tax deferred retirement accounts.

From the Barron's article:

"Key provisions of the House bill passed Tuesday include: 

● Raising the age at which seniors must take required minimum distributions, or RMDs, from their retirement savings accounts to 73 from 72, effective next Jan. 1. The bill will raise the age to 74 starting in 2030 and to 75 starting in 2033."

This provision would benefit many retirees and help them keep funds needed for retirement rather than pay taxes on funds they don't yet need.

For more on Reaping the Rewards, check back Fridays s for a new segment.

This is not financial, tax nor retirement advice. Please consult a professional advisor.

Copyright © 2022 Achievement Catalyst, LLC

No RMD in 2020

An element of the CARES act, the Coronavirus relief bill, is that no RMDs (required minimum distribuions) need to be taken in 2020, either for the IRA owner, or a beneficiary.    This is to help retirees by not requiring some to cash out of equities after the significant decline.

We will benefit from this since my mother-in-law passed away this year before taking her RMD.  Therefore, my spouse won't need to take a taxable withdrawal in 2020.    In addition, due to the SECURE act of 2019, my spouse won't required to ever take a RMD.  Instead, she will be required to withdraw the entire IRA account within 10 years of her mother's passing.

Separately, our daughter had inherited an IRA from my mother, which is still subject to the stretch IRA beneficiary rules requiring an RMD be taken base my daughter's life expectancy.  My daughter also does not need to take an RMD in 2020, but I had already withdrawn the RMD in early January, so it has been completed.

I am still under the age of taking an RMD, currently 72, but I expect tax laws will change again before I reach that age.

For more on Reaping the Rewards, check back  Fridays  for a new segment.

This is not financial, retirement nor IRA advice. Please consult a professional advisor.

Copyright © 2020 Achievement Catalyst, LLC

Opening a Roth IRA for our Daughter

This year, our daughter started her first job, reffing kid's soccer games.   The pay was good, about $15/hour.   Between reffing and plant watering, she earned $295 this year.

Since she has earned income this year, our daughter can contribute up to $295 to an IRA, either a Roth or Traditional (deductible) IRA.   Since her earnings are below the $1050 standard deduction for dependents and below $433 threshold for self employment taxes, our daughter doesn't not owe any income nor self employment taxes.  She also does not owe any state taxes.  Therefore, contributing to a Roth IRA is best since the earnings are tax free when withdrawn and there is no deduction benefit for contributing to a Traditional IRA.

To make the decision easy for our daughter, I will gift $295 to her to open the Roth IRA.  That way she can keep the money she earned and still start a retirement saving account. 

For more on Crossing Generations, check back Thursdays for a new segment.

This is not financial. investment, savings nor tax advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Taking Advantage of Low Tax Rates

With the new tax law, I can keep my tax rate at 12%, until 2025, unless there is a repeal.  I don't believe tax rates can be kept this low after 2025.  So I plan to convert as much of my Traditional IRAs as possible to Roth IRAs while still in the 12% tax bracket.   That way I can reduce my future RMDs, pay a low tax rate, and continue to grow our retirement savings tax free.

Of course, tax laws can be changed.  So I will taking advantage of the lower tax rate in 2018 and all future years.

For more on  Strategies and Plans, check back every Monday for a new segment.

This is not financial, retirement or tax advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

2016 IRA Contribution Deadline Is In 2017

The deadline for making 2016 IRA contributions is the due date of the 2016 tax return, which is April 17, 2017 this year.  It is one of a couple items for the 2016 tax year than can be done after 2016.   It gives the taxpayer an opportunity reduce the tax owed if they choose to do so.

The contribution limits for 2016 are $5,500 for under 50, ad $6,500 for 50 and older.  If 2016 wage earnings are less then that is the maximum for 2016..

A traditional IRA allows the contribution to be deducted from income for taxes, a Roth IRA does not all a deduction, but withdrawals in the future are tax free.

Even though we are retired, we earned a small amount of wage income.   We will put those funds in a a traditional IRA to get the benefit for a tax deduction and the benefit of tax free growth.  

For more on Ideas You Can Use, check back Tuesdays for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Managing the RMD Tax Trap

RMD stands for "Required Minimum Distribution," which is the required amount an IRA owner must start withdrawing from a Traditional IRA after reaching age 70-1/2.   For IRA owners over 70-1/2, the RMD requires them to take income and pay taxes, when they would sometimes rather leave the money in the IRA. Several retirees over 70-1/2 have told me they were advised to spend IRA last, but wish they had spent IRA  money before 70-1/2 to reduce the tax hit from the RMD.

Although I am still many years from 70-1/2, I am already looking at way I can reduce our future RMDs.  First, we will try to convert as much to Roth IRAs as possible, since Roth IRAs have no RMD (or taxes on withdrawals).   Second, we will spend some of our IRA funds prior to 70-1/2 when we can get a favorable tax rate.  Third, I will use an NUA (Net Unrealized Appreciation) as a tax efficient way to reduce funds in my traditional IRA.

These three approaches should help reduce our future RMDs, but I expect we may still feel caught by the RMD tax trap.

For more on Reaping the Rewards, check back every  Friday  for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

2013 IRA Contribution Limit

In 2013, the maximum IRA contribution limits increase by $500.   So the limit is now $5500 for those under 50 and $6500 or those 50 and older.  Although we are retired, we continue to make contributions to our IRAs, either at the maximum or 100% of our earnings if below the maximum. 

In past retirement years, we have been contributing to our IRAs at or very close to the maximum.  For 2013, we'll likely be contributing less that the maximum since I've been cutting back on my part time jobs.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or retirement saving advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

2012 IRA Decisions

IRAs are one category where current year decisions can be made in the following year.  For example, 2012 IRA contributions can be made until the due date for the 2012 tax return, April 15, 2013.  In addition, recharacterization of IRA contributions or Roth conversions (completed in 2012) can be done until the due date, including extensions, of the 2012 tax return.

Here how the extended deadline can be useful:

• Maximize deductions.  Until I do my tax return, I am not sure whether a deductible IRA contribution is what I want to do for a tax year.  Thus, being able to wait until April 15, 2013, enables me to make a decision when I have all the income, deduction and credit information to determine the decision that will minimize our tax liability.
• Maximize Roth conversion benefits.  For Roth conversions, taxpayers pay taxes on the amount that is converted.  If the value increases, the gain is tax free.  If the value decreases, taxes are still based on the original converted amount.  Thus, the ability to recharacterize in 2013 allows taxpayers to unconvert a Roth conversion that has decreased in value.

In 2012, I will be getting an unspecified amount of  income from my parents estate, which may put our income above the threshold for some tax credits.   The IRA deduction may lower our adjusted gross income enough to qualify for the credits again.   Since we did not do a Roth conversion, we won't benefit from the second IRA extended deadline.

For more on The Practice of Personal Finance, check back every Wednesday  for a new segment.


This is not financial advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

Designate Retirement Account Beneficiaries

As executor, I've learn the importance of having beneficiaries recorded for retirement accounts.  My dad listed my mom as the beneficiary for all his retirement accounts.  Although my mom had beneficiaries for all her retirement accounts, she did not add beneficiaries for the 401K retirement accounts she inherited from my dad.  As a result, the retirement account assets were distributed per the custodians procedure, which was to the estate.   So unless an inherited IRA is created in the name of the estate, taxes will be paid on the distribution.  Fortunately, the amount was not large enough to create a higher than normal tax liability.

For my mom's IRAs, we asked her to make the grandchildren her beneficiaries and they have rolled over the accounts into inherited IRA accounts.  The main tax benefit of choosing the grandchildren is that the required minimum distributions (RMDs) are based on their remaining life expectancy, which is about 75 years.  So only about 1/75th of the account needs to be withdrawn this year. (For reference, here is an RMD calculator for inherited IRAs.  Because the amount will be much less than the $950 standard deduction for children with unearned income, no taxes will be owed on the RMDs for 2012.

Based on this experience with my mom's estate, I've checked and confirmed that my spouse and I both have designated beneficiaries for all our retirement accounts.

For more on Reaping the Rewards, check back every Friday  for a new segment.

This is not financial or retirement account advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

Inherited IRA for our Daughter

As a estate planning strategy, we asked my mom to make her grandchildren the beneficiaries of her IRAs.  Besides giving some assets to her grandchildren, a major benefit is the required withdrawal period is extended to the lifetime of her grandchildren.  This allows the savings a longer time frame tax free earnings.  To take advantage of the extended time for withdrawals, the beneficiary must strictly follow IRS rules.

I just completed the paperwork for our daughter and here's what I've learned:

First, the inherited IRA cannot be commingled with existing IRAs or IRAs inherited for others.  Doing so will revoke the option of taking required withdrawals over the lifetime of the beneficiary.   In addition, a taxable distribution would have been made when the funds were commingled.

Second, a separate inherited IRA account should be opened with both the beneficiary's and decedent's no.  No additional contributions can be made to this IRA account.

Third, the creation of the IRA and transfer of funds must be completed by December 31 of the year following the decedent's death.

Fourth, a custodian is needed for beneficiaries under 18.

The only downside I've discovered is that taxable IRA RMD withdrawals will create a tax return filing requirment for our daughter.  However, I think she will be below the $950 standard deduction for a dependent taxpayer with only unearned income.  So, her tax liability should be zero.

For more on  Crossing Generations, check back every Wednesday for a new segment.

This is not financial or IRA advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

Roth IRA Contributions for Higher Income Individuals

In 2010, Congress removed the income limitation to do a conversion to a Roth IRA.  This created a loophole for high income people unable to make Roth IRA contributions due to income limitations.   These people could now open a Roth IRA account via a two step process: make a non-deductible contribution to a traditional IRA and convert the traditional IRA to a Roth IRA.  In certain cases, the Roth conversion may even be tax free.

According to the IRS tables, in 2012 Single taxpayers making over $125,000 and Married Filing Joint taxpayers making over $183,000 are not eligible to make a contribution to a Roth IRA.  Here's how these taxpayers could contribute to a Roth IRA  for the 2012 tax year.

Contribute to a Traditional IRA.  Make a contribution to a traditional IRA in 2012.  Everyone with wage income can contribute up to their earned income or $10,000 ($11,000 for 50 and older), which ever is lower.   High wage earners can make a non-deductible (after tax) contribution to a traditional IRA. 

Convert to a Roth IRA.  In 2012,  convert the traditional IRA to a Roth IRA.  Taxes will be owed on the contributions that were previously deductible or rolled over from a 401K plan.  The IRS won't allow taxpayers to cherry pick and roll over only the non-deductible (basis) portion.   The taxpayer's entire amounts in all IRA will need to be included.   However, if the 2012 contribution is the only IRA the taxpayer has, most if not all of the conversion will be not taxed since only the earnings above the contribution will be taxed.

File form 8606.  For the taxpayer's 2012 tax return, file form 8606 to inform the IRS that a Roth conversion has been done.

After completing these steps, a taxpayer will have a Roth IRA even though he was above the income threshhold to contribute directly to a Roth IRA in 2012.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, tax, or retirement saving advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

Making Roth IRA and After Tax 457 Plan Contributions in Retirement

Although retired, we still plan to make contributions to our retirement savings accounts. In 2010, I earned enough money at my part time jobs to make the maximum contributions to my Roth IRA and a spousal Roth IRA. Also, I am able to make additional after tax contributions to a public employee retirement (457) plan.

Here are the reasons for contributing:

Tax benefits - Earnings and withdrawals from a Roth IRA are tax free. Given a choice between saving in a Roth IRA or taxable savings account, the decision is an easy one. Earnings in the 457 plan are tax free, but will be taxed when withdrawn.

Fund reallocation - We have the funds needed to make the maximum contributions. The money will be taken from our long term savings which are currently in taxable accounts.

Fund availability - After tax contributions to a Roth IRA or a public employee retirement plan can be withdrawn at any time without paying taxes or penalties. Thus, we have the flexibility to use the funds should the need arise.

Our plan is to make our 2010 Roth IRA contribution in 2011 by April 15. The additional after tax contribution to my employee retirement plan will be made before the end of 2010.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial, saving or retirement advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Roth IRA: To Convert or Not to Convert

In 2010, anybody will be able to convert funds from a traditional IRA to a Roth IRA, since the $100,000 MAGI (modified adjusted gross income) restriction is eliminated. Given the opportunity, the question is whether is it makes financial sense to do a conversion or not. In most cases, I don't believe there is a standard answer that works for everybody. Each case needs to be considered individually. Here are the criteria we used, when we became eligible to do Roth conversions.

Current tax rate lower than future tax rate. A key question is whether the tax rate on the conversion or the tax rate on the future IRA withdrawal will be higher. If the future tax rate is projected to be higher, a conversion made sense to us. If the future tax rate is projected to be lower, then not doing a conversion would make sense.

Of course, we are not able to estimate future tax rates with 100% certainty. However, I believe, with 100% conviction, that our marginal tax rate will be higher than 15%. If we are able to make Roth conversions at a 15% tax rate, I believe we will be better off financially than leaving the funds in a traditional IRA. Therefore, we have been doing Roth conversions only if our taxable income is at a 15% marginal tax rate.

To me, it is a tougher decision at a 25% marginal tax rate. However, I still believe that my future marginal tax rate will likely be at 25% or higher.

Amount of funds subject to the required minimum distribution (RMD). The RMD is the amount of funds an IRA owner is required to withdrawal each year after reaching the age of 70 1/2. An RMD must be taken, even if the recipient does not need the funds. Thus, RMD reduce the capability of the IRA owner to manage his income for tax purposes. The larger the amount of funds in traditional IRAs, the more it may make sense to do a Roth conversion.

Since my company's retirement funds were in a profit sharing plan (i.e. similar to a 401(k)), we will eventually have a large amount of savings in traditional IRAs as funds are rolled over with time.

Having funds outside the IRA to pay the tax. If all of the IRA funds are converted to a Roth IRA, the taxpayer will only owe taxes on the amount converted. If part of the IRA funds are used to pay the taxes, a 10% early withdrawal penalty will be assessed on the amount if one is under the age of 59 1/2.

We were able to pay all the taxes with funds from our taxable accounts.

Since the answer to each criteria was a "yes" for us, we proceeded with doing Roth conversions in 2008 and 2009. For our Roth conversion decision in 2010, we will apply the same criteria again.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, IRA, or tax advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

A Roth Conversion Strategy For a Declining Market

With the stock market down, a silver lining recommendation is to consider a Roth IRA conversion of stocks held in a traditional IRA. The common wisdom is that one is only paying taxes on the reduced value of the stock at the time of conversion, and when the market recovers, the gain will be tax free since the stock is held in a Roth IRA. This is a great idea, except when the stock continues to decline after the conversion. In this instance, one is paying taxes on an amount greater than the value of the stock in the Roth IRA.

	Tax Consequences of Roth Conversions
	Converted Amount	Value in Future	Amount that is Taxed
Stock increases in value	$5,000	$10,000	$5,000
Stock decreases in value	$5,000	$3,000	$5,000

Of course, if a decline happens, one can avoid paying the tax by reversing the Roth conversion in a process called recharacterization. Unfortunately, one loses the opportunity to convert further funds to the Roth IRA for 30 days or the next tax year which ever is later. This exact issue happened to us in 2008, causing me to recharacterize my Roth conversion.

In discussions with my financial advisor, he mentioned a Roth conversion strategy that they were using to reduce the risk of paying taxes on losses. They were doing multiple Roth conversions of stock portfolios, and then later choosing to recharacterize the Roth conversion that had declined in value. My build on this idea was to make one of the Roth conversions cash, which would guarantee that at least one portfolio would not decline. Assuming one only wants to keep one Roth conversion for a tax year, the table below show how I would think about keeping or recharacterizing multiple Roth IRA conversions.

	Multiple Roth Conversion Strategy
Assets Converted	Conversion Amount	Future Value	Recharterization Decision
Stock Portfolio 1	$10,000	$5,000	Recharacterize
Stock Portfolio 2	$10,000	$15,000	Maintain Conversion
Cash	$10,000	$10,100	Maintain conversion when versus Stock Portfolio 1, Recharacterize versus Stock Portfolio 2

This week I implemented the idea of multiple Roth conversions of equal value with my financial advisor, with one conversion of cash, one conversion of my company stock and one conversion of a managed account. At the end of 2009, I will keep the Roth conversion that is the highest in value and therefore, avoid paying taxes on a conversion amount that is higher than the value in the Roth IRA.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, tax, or investment advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Required Minimum Distributions for 2009 Suspended

"A day late and a dollar short." ~ idiom

Congress OKs bill to help retirees protect savings plan by Sandra Block in USA Today, report that Congress has passed a bill, H.R. 7327, to suspend Required Minimum Distributions (RMD) for 2009. RMDs currently must be taken taken from tax deferred retirement plans beginning in the year one turns 70 1/2. Suspending RMDs will allow retirement accounts time to recover some for the losses of 2008, before a withdrawal of funds is made.

RMDs are typically based on the the value of the retirement accounts on December 31 of the previous year, making 2008 RMDs were particularly painful since many accounts are much lower than the December 31, 2007 value. Therefore, suspending the 2008 RMDs would have been the most helpful legislation for retirees, which, unfortunately, Congress has not done.

A bill, H.R 7315, was introduced on December 9, 2008, to suspend 2008 RMDs retroactively. However, the bill is still in committee has not gone to vote.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

A Retirement Tax Strategy - Minimizing the Tax Impact of Roth IRA Conversions

In 2008, I plan to convert some of our regular IRA funds to a Roth IRA to use up tax credits and itemized deduction that may otherwise go unused. As background, I retired in my forties in October, 2007. As a result, our income will be significantly lower, but our itemized deductions will remain relatively high due to mortgage interest and property taxes. In addition, we will now qualify for a child tax credit, which is nonrefundable. In order to take advantage of these deductions and credits, we will need to increase our taxable income. Otherwise, the deductions and credits may be partly unused, because the tax liability is already low.

Here are the ways I've been considering to increase our taxable income:

1. Earn some income. I'll be doing some part time jobs in 2008. However, because the work is seasonal and part time, the earnings will be less than the amount necessary to completely offset the deductions and credits. Of course, this is to be expected since I am retired:-)



2. Increase taxable interest. Part of our fixed income investments pay tax exempt interest. By changing to investments that pay taxable interest, we will increase our taxable income. Again this will provide some but not enough additional income to offset our expected deductions and credits.



3. Take capital gains on stock investments. Selling stocks which have increased will create income. For 2008 to 2010, stock long term gains will create zero percent federal tax liability for those with in the 15% tax bracket ( $65,100 for Married Filing Jointly, $35,550 for Single in 2008). Unfortunately, if the market continues as it has for the beginning of 2008, I may not have may not have many stocks with gains later this year :-(



4. Convert regular IRAs to Roth IRAs. Taxpayers (not including Married Filing Separate)with an AGI (before the Roth conversion) of less than $100,000 are eligible to make conversions from a regular IRA to a Roth IRA. The funds of the regular IRA that would have been a taxable distribution are considered taxable income when doing a conversion.

I will be using all four of the options to increase our taxable income for 2008. Option #4 provides the most flexibility since I fully control of the amount of income created. In addition, I can wait until the end of 2008 to make the conversion. Based on preliminary estimates, I may be able to make a sizable Roth conversion and pay no federal income tax due to itemized deductions and child tax credits. However, we would still have a state income tax liability since there are fewer state deductions and credits than in the federal return.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Protection For IRAs From Creditors

Since I have retired from my company, I plan to move the majority of my retirement savings to a rollover IRA. Although I knew qualified company retirement plans (see ERISA) like mine were protected from creditors, I wasn't sure about IRAs.

The article Individual Retirement Accounts and Bankruptcy by Ellen R. Marshall in the CPA Journal shares that all retirement accounts are now afforded some protection. Previously, a qualified company retirement plan was acknowledged to be 100% protected, but it was unclear if IRAs were provided any protection. The Bankruptcy Abuse Protection, Consumer Protection Act of 2005 went into effect on October 17, 2005 and provide unlimited protection for IRA rollovers from qualified retirement plans and up to one million dollars for contributory IRAs. If IRAs are co-mingled, the protection can still be applied to the separate components.

Given these protections, I can move my company retirement accounts to a Rollover IRA and be confident that the funds are protected assets.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Roth or Traditional IRA For Our Children?

Is it better for my daughter to use a Roth, where withdrawals are tax free, or a Traditional IRA, where contributions are tax deductible, for retirement savings? The answer is, "It depends" on whether one's retirement tax rate is higher, lower or equal to one's tax rate during time one is contributing. Below is a table showing the recommended choice.

	IRA Choice For Higher Return
Tax Rate in Retirement	Roth IRA	Traditional IRA
Equal	X	-
Higher	X	-
Lower	-	X

In a previous post on choosing between a Roth or Traditional IRA , I showed that a Roth had a better return when the tax rate was the same after retirement. In The Best Retirement Deal by Walter Updegrave, he agrees with the equal tax rate analysis and shows the results for both lower and higher tax rates after retirement. His conclusion is that one cannot predict future tax rates and therefore, should put some retirement funds in a Roth IRA.

Being somewhat pessimistic, I expect that my daughter's tax rate will likely be higher after retirement than in her working years. Therefore, I would recommend putting savings in a Roth IRA if she qualifies. If she doesn't qualify for a Roth IRA, I would still have her put money into a non-deductible IRA.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, saving or retirement advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Start Thinking About 2007 IRA Contribution

Now that your 2006 tax return is filed, you can start thinking about your 2007 tax return :-)While the deadline is April 15, 2008, it’s not too soon to start setting aside money for your 2007 IRA contributions. As I wrote in a previous post, IRAs are one way to use “other people’s money” to save.

For 2007 the IRA contribution limits are the same as for 2006. The maximum IRA contribution is $4000 per person with a $1000 catch-up contribution for people 50 or older. The income limits to qualify for IRA deductibility and Roth IRAs have been increased.

IRA owner participates in a company sponsored retirement program

Regular IRA contributions are 100% deductible for modified adjusted gross incomes (MAGI) up to $52,000 (single) and $83,000 (married filing jointly). People with MAGI over $62,000(single) and $103,000 (married filing jointly) cannot deduct regular IRA contributions. Roth IRA contributions are not deductible and the maximum contribution can be made for MAGI up to $99,000 (single) and $156,000 (married filing jointly). People with MAGI over $114,000 (single) and $166,000 (married filing jointly) cannot make Roth IRA contributions.

IRA owner does not participate in company sponsored retirement program

No income limits for deductibility of IRA for both single and married filing jointly. If the spouse participates in a company sponsored retirement plan, then the IRA owner can deduct 100% of the contribution up to $156,000 MAGI. No deduction is allowed after $166,000 MAGI.

For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC