2008 IRA And Roth IRA Contribution Deadline Nears

Tax Filing time is here again for the 2008 calender year. As many people are scrambling, I just wanted to make sure that people know that there is a very simple tax deduction that is commonly overlooked.

That deduction is your contribution to your contributory IRA, or Roth IRA.

Regardless of the type of IRA you choose, the Federal government imposes annual contribution limits. The chart below shows the maximum dollar amount individuals are allowed to deposit into their IRA each year. After 2008, the contribution limit will raise in increments of $500 depending upon the level of inflation.

The current IRA contribution limits for 2008 are as follows

Traditional IRA Profile

• Tax deductible contributions (depending on income level)

• Withdraws begin at age 59 1/2 and are mandatory by 70 1/2.
• Taxes are paid on earnings when withdrawn from the IRA
• Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
• Available to everyone; no income restrictions
• All funds withdrawn (including principal contributions) before 59 1/2 are subject to a 10% penalty (subject to exception).

Roth IRA Profile

• Contributions are not tax deductible

• No Mandatory Distribution Age
• All earnings and principal are 100% tax free if rules and regulations are followed
• Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
• Available only to single-filers making up to $95,000 or married couples making a combined maximum of $150,000 annually.
• Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

Tax Deferred vs. Tax Free

The biggest difference between the Traditional and Roth IRA is the way the U.S. Government treats the taxes. If you earn $50,000 a year and put $2,000 in a traditional IRA, you will be able to deduct the contribution from your income taxes (meaning you will only have to pay tax on $48,000 in income to the IRS). At 59 1/2, you may begin withdrawing funds but will be forced to pay taxes on all of the capital gains, interest, dividends, etc., that were earned over the past years.

On the other hand, if you put the same $2,000 in a Roth IRA, you would not receive the income tax deduction. If you needed the money in the account, you could withdraw the principal at any time (although you will pay penalties if you withdraw any of the earnings your money has made). When you reached retirement age, you would be able to withdraw all of the money 100% tax free. The Roth IRA is going to make more sense in most situations. Unfortunately, not everyone qualifies for a Roth. A person filing their taxes as single can not make over $95,000. Married couples are better off, with a maximum income of $150,000 yearly.

Please note: The deadline for 2008 IRA contributions is April 15, 2009.

In order to qualify as a 2008 IRA contribution, the following criteria must be met:

• Contributions to your self directed or Roth IRA plan must be received on or before April 15, 2009.
  If your Individual Retirement Account funds are delivered via US postal service, the envelope must have a postmark of April 15, 2009 or before.

If a company receives an IRA or Roth IRA contribution and it qualifies as a 2008 contribution but the contribution year has not been specified, the contribution is not “in good order.” If the IRA custodian cannot obtain clarification, they will process the IRA contribution as a 2009 contribution.

For additional information regarding IRA contributions, please review IRS Publication 590 at www.irs.gov. You can obtain a hard copy of the IRS Publication 590 by contacting the Internal Revenue Service directly at 800 829.1040.

The eRollover family of companies, its affiliates and representatives do not provide tax advice. The discussion of tax matters in this material is our interpretation of current tax law and is not intended as tax advice. Your clients should consult a tax professional for information relating to their particular situation.

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