How to Implement New 2008 IRA Changes
Introduction
There are a number of changes that could contribute to tax savings for the tax year 2008. These include the Charitable IRA Rollovers, increased contribution limits, increased phase-out ranges, and opportunities for ROTH conversions,
Increased Contribution Limits
The contribution limit is the lower of $5,000 or earned compensation for taxpayers under age 50, and an additional $1,000 for taxpayers age 50 or older but less than age 70 1/2 (taxpayers who reach age 70 ½ during a particular year cannot make an IRA contribution for that year). The increased limits allow parents to have their college-bound children contribute more to IRA accounts, assuming they have earned income, later to be withdrawn for college costs, if needed. Married couples can have their own individual IRAs, if otherwise eligible, which doubles the contribution limits per couple.
Increased Phase-out Ranges
The following represent the phase-out ranges for deductible traditional IRA contributions if you are covered by a qualified plan at work:
Amount of Deduction Modified Adjusted Gross Inceome Phase-out Range
| | Married Filing Jointly or Widow(er)
| Single or Head of Household
| Married Filing Separately
| | Full Deduction | Less than $85,000 | Less than $53,000 | 0 | | Phased-out Deduction | $85,000 to $105,000 | $53,000 to $63,000 | 0 to $10,000 | No Deduction
| More than $105,000 | More than $63,000
| More than $10,000 |
The following represents the phase-out ranges for deductible traditional IRA contributions if you are not covered by a qualified plan at work: Amount of Deduction Modified Adjusted Gross Inceome Phase-out Range
| | Married Filing Jointly or Widow(er)
spouse not covered at work
| Married Filing Jointly or Widow(er)
spouse covered at work
| Single or Head of Household
| Married Filing Separately
spouse covered at work
| Full Deduction
| Phase-out
nonapplicable;
full deduction | Less than
$156,000 | Phase-out
nonapplicable;
full deduction | 0 | | Phased-out Deduction | Phase-out
nonapplicable;
full deduction | $156,000 to $166,000 | Phase-out
nonapplicable;
full deduction | 0 to $10,000 | | No Deduction | Phase-out
nonapplicable;
full deduction | More than
$166,000 | Phase-out
nonapplicable;
full deduction | More than $10,000 |
Charitable IRA Rollovers
The Emergency Economic Stabilization Act extended this provision to 2008 and 2009. There is a separate article written exclusively on this topic, and we refer you to that.
ROTH IRA Conversions
A separate article was written exclusively on this topic, but to review, in 2009 and thereafter, there is a risk for tax rate increases on those having adjusted gross income of more than $250,000, and a lesser risk of tax rate increases on everyone else. That’s my minority opinion notwithstanding all that President-elect Barrack Obama has stated on the subject. I acknowledge that he has kind of hinted at no tax rate increases for 2009. The question is which year is the least risky, from a pure tax rate consideration to convert to a ROTH…2008 or 2009 and years thereafter? From a risk viewpoint, 2008 is the easy answer.
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