Traditional and Roth IRAs Ceilings Remain Unchanged for 2009

There are no changes to the contribution limits set for traditional or Roth IRAs in 2009. The ceiling remains as it was last year: you may contribute up to $5,000 if you’re under 50 years of age, or $6,000 (using the “catch-up” provision that allows an additional $1,000 if you’re over 50 or turn 50 during 2009). Current legislation stipulates that future limits will be adjusted for inflation in $500 increments.

It’s worth remembering that even if you contribute to an employer-sponsored 401(k) or 403(b) plan, you can still contribute to an IRA, although you may not be able to do so with pre-tax dollars, depending on your income. Individual retirement arrangement account limits may seem small compared to salary-deferral retirement plans, but steady contributions to a tax-advantaged IRA can build up a substantial retirement nest egg.

You still have time – until April 15, 2009 – to contribute to your 2008 IRA, if you haven’t yet reached the $5,000 ($6,000 if you’re 50 or over) limit. If you have already contributed the maximum for last year, you can begin contributing for 2009 at any time. The earlier the better – early contributions have a chance to grow tax-free with any reinvested interest, dividends and capital gains that collect during the year.

If you have a non-working spouse and have enough earned income to qualify, you can also contribute to a spousal IRA (the same limits apply).   If you qualify, contributions to a traditional IRA can be made with pre-tax dollars. When funds are withdrawn, they are taxed as regular income. Anyone 70½ or older has been required to take a minimum distribution every year. The amount is determined by a table provided by the Internal Revenue Service. However, for 2009 only, the rule has been suspended. Mandatory withdrawals are scheduled to resume in 2010. Because contributions to a Roth IRA are made with after-tax dollars, qualified distributions are tax-free. In addition, you are not required to withdraw any money from your Roth IRA, and you may continue to contribute to it as long as you have earned income.

Planning for retirement should begin early in your working life, because years of compounding are likely to improve your chances of achieving the retirement you desire. You may have questions about whether a traditional or Roth IRA (or a combination) is best for your situation. If you have any questions, you may contact Robin at 770-887-2772, or by email at rgrier@harborfs.com .  You can also visit the website at www.robingrier.com.

This material is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. Before making any financial commitment regarding the issues discussed here consult with the appropriate professional adviser.

Securities offered through Harbor Financial Services, LLC Member FINRA/SIPC, Clearing Raymond James & Associates, Inc. Member FINRA/SIPC

 Robin Grier Financial Services, Inc is not an affiliate or Subsidiary of Harbor Financial Services, LLC

Nervous 401(k) Investors Shouldn’t Bail Out 

It’s no surprise that a turbulent stock market is making some investors in employer-sponsored 401(k) retirement plans wary of putting any more money into these plans. But a volatile stock market doesn’t mean you should stop or cut back on contributions to your 401(k). Whether you be in Metro Atlanta or Beyond this is timely news you can use.

In fact, you should do just the opposite. If you’ve reached the maximum annual contribution this year to your 401(k) and still have money left over to invest, then you may want to consider a Roth or traditional IRA.  If you need liquidity, you might want to fund investments outside of your retirement accounts. 

Most 401(k) investors should plow as much money as they can into these plans in order to benefit from their employer’s matching contribution and tax deferred growth, and also to take advantage of a simple strategy called dollar-cost averaging. 

By continuing to invest a fixed dollar amount each month into your 401(k)’s stock portfolio, you’re able to buy more shares when prices are low and fewer shares when prices rise. Add that to your employer’s matching contribution and tax-deferred compounding, and you’re poised to see the value of your plan go up when the market rebounds. Keep in mind that dollar-cost averaging does not guarantee profit or protect against loss and you should consider your financial ability to continue purchases at low levels. 

            If you’re worried about your declining 401(k) balance, you may want to look at some of these options: 

§  Diversify into bonds.   If you’re 100% invested in stocks and are uncomfortable with the volatility, shift more of your 401(k) assets into fixed-income investments such as bonds, which may offer your portfolio more stability and income to fund your golden years. However, avoid wholesale switches back and forth and it’s a good rule of thumb to consider having at least 25 percent of your portfolio in stocks throughout your retirement to keep ahead of inflation and keep your retirement income growing.

§  Retire later. Delaying your retirement one or two years can have a dramatic effect on the value of your retirement portfolio. For example, if you’re 40 years old and plan to retire at age 55 with a portfolio currently valued at $300,000 earning 8 percent annually, you would run out of money at age 73 if you withdrew $100,000 in income each year beginning at age 55. However, assuming the same numbers, by postponing your retirement only two more years to age 57, that same portfolio could last until age 85, about 12 years longer.

§  Work part time. More retirees are finding that the good life doesn’t always mean relaxing poolside. Many become bored and start second careers or work part time for some extra cash. By working part time you can decrease the amount of income you draw from your investment assets such as your 401(k). This can greatly extend the life of your 401(k) assets and provide a potentially higher income in your later years.

§  Reduce debt. Paying off high-interest credit-card debt and other loans can put more money into your pocket each month that can reduce the amount of income you need to tap from your 401(k) or buy more time for your portfolio to grow. Because many mortgage balances are higher on average than they were a decade ago, that means refinancing your mortgage may save you a significant amount each month even if mortgage interest rates drop only one to 1.5 percent. 

Please note that the examples above are for illustrative purposes only and do not reflect the performance of any particular investment.  Your financial advisor can help you create a plan to suit your individual needs and can help discuss other alternatives to help you better plan for retirement.

 The accuracy and completeness of this article are not guaranteed. The opinions expressed are those of the author(s) and are not necessarily those of Wachovia Securities/Wachovia Securities Financial Network or its affiliates. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.  

This article was written by Wachovia Securities and provided courtesy of The Strong Gaddy Lilly Wealth Management Group in Gainesville, GA.  They can be reached at 770-532-6361 or 1-800-332-6361.

Presented here my Atlanta Christian CPA, Author and Speaker John Dillard CPA who can be reached at www.HisCPA.com or by calling at 770.814.9304