IRA Investment and Tax Planning

As 2009 draws to an end, many are checking their IRA options. Of course, the sooner you can invest, the better for your allocation, so that is a cash flow matter. As for how much you can invest, please see the 2009 limits below. Also keep in mind the Roth IRA conversion options mentioned in a prior newsletter.

Here are the rules from the IRS website:

Modified AGI limit for traditional IRA contributions increased. For 2009, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:

* More than $89,000 but less than $109,000 for a married couple filing a joint return or a qualifying widow(er),

* More than $55,000 but less than $65,000 for a single individual or head of household, or

* Less than $10,000 for a married individual filing a separate return.

If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $166,000 but less than $176,000. If your modified AGI is $176,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? in chapter 1.

Modified AGI limit for Roth IRA contributions increased. For 2009, your Roth IRA contribution limit is reduced (phased out) in the following situations.

* Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $166,000. You cannot make a Roth IRA contribution if your modified AGI is $176,000 or more.

* Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2009 and your modified AGI is at least $105,000. You cannot make a Roth IRA contribution if your modified AGI is $120,000 or more.

* Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

See Can You Contribute to a Roth IRA? in chapter 2.

Modified AGI limit for retirement savings contributions credit increased. For 2009, you may be able to claim the retirement savings contributions credit if your modified AGI is not more than:

* $55,500 if your filing status is married filing jointly,

* $41,625 if your filing status is head of household, or

* $27,750 if your filing status is single, married filing separately, or qualifying widow(er).

See Can you claim the credit? in chapter 5.

Temporary waiver of required minimum distribution rules. No minimum distribution is required from your traditional or Roth IRA for 2009. See Temporary waiver of required minimum distribution rules for 2009 in chapter 1.

Let us know if you have questions or comments. Thanks,

Steven