February 2008 Newsletter: Tax Season

Tax Season

When you and/or your accountant prepare your 2007 income taxes, make sure you take advantage of your retirement funding options for last year and that you develop a tax strategy for future years.

As part of double checking all of your deductions for 2007, determine if you are eligible to make contributions to a retirement plan. Some plans such as the Roth IRA, Traditional IRA, and SEP IRA allow for you to make contributions for 2007 until April 15th.

Individuals may make full contributions to Roth IRAs if their adjusted gross income (AGI) is $99,000 or less (up from $95,000 in 2006). The maximum contribution for 2007 is $4,000. For those over age 50, you may make a "catch-up" contribution of an additional $1,000. Married couples have an AGI limit of $156,000 (up from $150,000) for each to make their maximum contribution. Roth IRA contributions for 2008 increase to $5,000 with a $1,000 additional catch-up contribution for those over 50.

Some of you may have self-employment income. This could come from your primary employment or from supplemental consulting work. In either event, you might qualify to contribute a portion of your 2007 self- employment earnings in a SEP IRA. This contribution would be made pre-tax, which could lower your taxable income.

For those of you planning for the future, you will have many options to review. One of those options is to contact your HR department to find out of your company allows for Roth contributions to your retirement plan. Roth contributions are made with post-tax dollars, but grow tax deferred and could be withdrawn tax free in retirement. This could compliment your traditional retirement plan distributions which would be taxable.

Another option for the future is adding to a nonqualified IRA. For those of you who have additional cash flow, you can contribute to this type of plan over the next few years. In 2010, you will be able to convert the IRA (and other Traditional IRAs you may have) to a Roth IRA regardless of your income. Today you must have AGI less than $100,000.

For those of you with self-employment income, you may want to look into a solo 401k. This plan is also referred to as an individual 401k or a uni-k. The solo 401k typically allows for greater contributions than a SEP IRA and can provide loan privileges. The solo 401k must be opened by December 31st in order to contribute for that tax year.

Depending on your needs, many other proactive strategies may apply. These include gifting, tax- friendly investments, annuities, etc. Make sure to consult your tax advisor before implementing these or any other tax strategies.

Feel free to contact our office with any market or financial planning related questions you may have. We're happy to help you through these turbulent times. You may also contact us with your tax questions. If we cannot answer them, we will be happy to refer you to a local CPA.