401(k) Plan (4)
• Deferred compensation plan available through a wide range of employers.
• Contributions to a 401(k) plan are tax deferred to the employee.
• Distributions from the plan are taxed as ordinary income when received.
• Employer may opt to match all or part of the employee's contributions.
Deferred compensation plan available to employees of:
• Public education organizations
• Some non-profit organizations
• Cooperative hospital service organizations
Deferred compensation plan available to employees of many government entities.
Non-qualified Retirement Plan
Does not meet the requirements of a Qualified Plan.
Qualified Retirement Plan (2)
A plan which is eligible for favorable tax treatment because it meets the requirements of:
• IRC §401(a)
• The Employment Retirement Income Security Act of 1974 (ERISA)
Contribution Limits for Deferred Compensation Plans
• Annual allowable contribution is $16,500.
• Taxpayers over 50 are allowed an additional $5,500
Traditional IRA Qualifications
In order to establish and contribute:
• Must have some taxable compensation
• Must not have reached age 70½ by the end of the tax year.
• May contribute up to the lesser of $5,000 ($6,000 age 50) or 100% of their compensation.
Active Participant of Retirement Plans (2)
A taxpayer is considered ACTIVE:
• If he participates at any time during the year in a qualified plan.
• If W-2 Box 13 (Retirement Plan) is marked
ROTH IRA Phaseout Ranges:
S, HH, MFS¹ - $105,000 - $120,000
MFJ, QW - $166,000 - $176,000
MFS² - $1 - $9,999
¹ Did not live with spouse at all
² Lived with spouse some time during year
Saver's Credit Rates
50% < $33,001
20% $33,001 - $36,000
10% $36,001 - $55,000
00% > $55,000
50% < $24,751
20% $24,751 - $27,000
10% $27,001 - $41,625
00% > $41,625
50% < $16,501
20% $16,501 - $18,000
10% $18,001 - $27,750
00% > $27,750
An eligible married taxpayer may establish a spousal IRA even if the spouse has received little or no compensation.
The maximum contribution to a spousal IRA is the lesser of:
• $5,000 ($6,000 age 50)
• 100% of the couple's combined compensation, reduced by any contributions the higher-income spouse has made to his IRAs.
Retirement Savings Contribution Credit (Saver's Credit)
A nonrefundable credit in addition to any allowable deduction for IRA contributions.
Not available to the following:
• Born after January 1, 1992
• Claimed as a dependent on another return.
• Full-time students during any part of five calendar months in 2009.
Roth IRA Conversion Income Reporting (4)
• The default option is for clients converting in 2010 is to report 50% in 2011 and 50% in 2012.
• The client may choose to report the entire amount in 2010.
• Conversions after 2010 must be reported in full that year.
• Reported on Form 8606.
Roth IRA Conversion of Nondeductible Traditional IRAs
Clients with basis in a traditional IRA may NOT convert only the basis portion to a Roth IRA.
Unless the entire balance is converted, any basis in traditional IRAs must be allocated to the amount converted using the following formula:
(Total basis in all traditional IRAs / Total value of all traditional IRAs) x Amount converted = Basis allocated to converted amount.
Roth IRA Conversion by both spouses
Each spouse may elect how to be taxed on their own conversion.
Roth IRA Conversion Qualifications
Beginning in 2010, the MAGI and filing status requirements are permanently eliminated.