BOSTON (CBS) – Paying taxes is a privilege; it’s the price we pay for living in a civilized society. But you should do tax planning so you only pay your fair share of taxes.
And the government has made it easy for you to plan for retirement. They give you until you file your tax return this year, which is April 18th to make contributions to your IRAs for last year.
It is not too late to think about contributing to an IRA for 2010. If you were covered by a retirement plan at work you are limited to what you can contribute to a deductible IRA. The deduction goes away for single taxpayers with income between $56,000 and $66,000 and for married individuals its $89,000 to $109,000.
If your employer did not offer a retirement plan during 2010 you can contribute to a deductible IRA no matter how much money you earned. You can put away up to $5,000 and if you were 50 or older last year the government allows you to catch-up and add another $1000 to the account.
You can also contribute to a Roth IRA for 2010. Here you must make the contribution by April 18th. You do not get an upfront tax break for the Roth IRA contribution, but when you do retire the money the Roth has earned will be free from federal income taxes. The government has set income limits here also.
If you are single your ability to contribute to a Roth IRA is phased out if you make more than $105,000 and goes away entirely if you earn over $120,000. Married filing jointly its $166,000 and goes away at $176,000 of Adjusted Gross Income (AGI). Limit is $5,000 and if you hit that magic age of 50 last year the IRS allows you catch-up contribution and you can add another $1000 to the account.
If you were self-employed last year you still have time to set up a SEP-IRA, a Simplified Employee Pension plan. A SEP allows you to contribute up to 25% of your net income up to a maximum of $49,000 whichever is less. The contributions are deductible helping you with your tax planning and you have until you file your tax return this year to contribute. You have to include any employees you have who are over 21. If you plan to use a SEP, I would suggest setting it up this week!
If you are self-employed with a SIMPLE IRA in place, this is a Savings Incentive Match Plan for Employees, you have until you do your tax return to make your contributions for last year. This plan had to have been set up by October 1st of the year you are implementing it. You can contribute the lesser of $11,500 or 100% percent of your compensation. And if you are over 50 you can add an additional $2500. But you would need to have income equal to the amount you wish to contribute.