Remember that up until April 15 you can make a deductible ‘traditional IRA’ contribution of $5000 ($6000 if over 50 years old) for yourself if single and $5000 ($6000) each if you are married. You need at least the amount of the contribution in earned income (salaries, self employed income) to qualify. If you are in the 25% tax bracket (fed & state) it will save you $1250 for each $5000 contributed, so it only costs you $3750 in dollars to contribute the $5000. If you have a retirement plan at your work there are income limits to make the contribution. If you make less than $56000 single or $89000 married your contribution will start to phase out. Let me know if you want to discuss this at bstonercpa@sbcglobal.net
Or you could make a Roth IRA contribution. There is no upfront tax deduction but if you don’t withdraw the money for the longer of 5 years or you turn 59 1/2, all withdrawals are tax free. A traditional IRA withdrawal is 100% taxable since you got a tax deduction up front for your contribution. This is tax deferral. A Roth is totally tax free. If you expect (like me) that tax rates will be higher when you retire, a Roth might be looking into. Let me know if you want to discuss this at bstonercpa@sbcglobal.net There are some income limits on the Roth. If you make more than $107000 single or $167000 married your contribution starts to phase out; if you make more than $120000 single or $177000 married you can’t make a Roth contribution.
One last thing: if you are retired and over 70 1/2, in 2009 you did not have to take your required minimum distribution from your retirement plan or traditional IRA (there is no RMD with a Roth IRA). In 2010 you have to take your RMD again. Make sure to talk to your plan administrator or financial advisor so it is taken before the end of 2010, or you could be penalized. Let me know if you want to discuss this at bstonercpa@sbcglobal.net