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The Online Advisor

August 2008


What's New in Taxes
Summer is a good time for retirement tax planning

When it comes to your retirement, three areas are hot for summertime tax planning: establishing a plan, making contributions to existing plans, and taking distributions.

* Establish a retirement plan for your business. Qualified retirement plans shelter self-employment income and provide tax-free growth. In 2008 you can contribute up to $10,500 to a SIMPLE IRA (plus another $2,500 if you're over age 50). If you're self-employed, you may be able to contribute more.

Initial and ongoing paperwork for many plans is generally minimal. Setting up a plan during the summer lets you sock away your total contribution over several months, instead of scrambling for a lump-sum at year-end.

Need additional incentive? Your business may be able to claim a tax credit that helps offset the cost of implementing your new plan.

* Make contributions. No matter what retirement plan you have, it's never too early to put money aside. Budget now for manageable monthly set-asides. Smaller amounts add up by year-end and can offer multiple current tax advantages in addition to longer-term benefits.

For instance, depending on your income, contributions to traditional IRAs can be an above-the-line deduction that lowers your tax. The Saver's Credit, which applies directly against your tax liability and is available to lower-income taxpayers for making contributions to IRAs or other retirement plans, may also save you money.

Contribution limits for traditional and Roth IRAs have been increased to $5,000 for 2008. If you're over age 50 by year-end, the additional catch-up contribution is $1,000. You can set up an IRA even if you're covered under other plans (though deductibility of contributions may not be permitted in some situations).

* Schedule your distributions. Retirement plan distributions are generally taxable at ordinary income rates, so you'll want to know now how withdrawals will affect your 2008 tax liability.

If you're not yet required to take distributions, you may have some flexibility as to which accounts you tap to meet your cash flow needs. A summertime inventory of your assets lets you compare different distribution tactics and calculate the tax effect of withdrawals from taxable assets versus those from your retirement plans.

What if you've already reached age 70-1/2? At that point, under the required minimum distribution rules, you generally have to start withdrawing funds from your retirement accounts to avoid penalties. Advance planning can help you decide if shifting your taxable accounts to tax-efficient investments will save money.

For assistance with your retirement tax planning, give our office a call.





For details or for assistance with your tax planning, give our office a call.

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