Tarpley & Underwood
Financial Advisors, LLC
We are only one year away from perhaps the most interesting, most experimental year in the history of the tax code: 2010. But before we get there, we have a host of little adjustments in tax law for 2009. Let’s take a look at the notable changes. While we’re at it, we will also include a couple of tax provisions enacted during 2008 that are still applicable in 2009. (For those of you wondering exactly where the last minute falls on your calendar, April 15 is a Wednesday this year.)
1) No mandatory taxable withdrawals from tax-deferred retirement accounts in 2009.
Late last year, President Bush signed a new law suspending all Required Minimum Distributions (RMDs) from IRAs, 401(k)s and 403(b)s for 2009. If you are 70½ or older, you can skip your RMD this year without a tax penalty.1
• Did you turn 70½ in 2008? You have until April 1, 2009 to take your RMD for the 2008 tax year, calculated using your account balance as of December 31, 2007. (You may have taken that first RMD in 2008.)2
• Will you turn 70½ in 2009? You have no requirement to take a 2009 RMD, but you will need to make a 2010 RMD by December 31, 2010, which the IRS will officially count as your “second” distribution from your retirement account, even though you didn’t take a “first” one the year before.2
• Do you have an inherited IRA? You can skip your mandatory withdrawal in 2009. Effectively, this gives you another year toward the five-year deadline you face to withdraw all the funds in that IRA. (In fact, you may not have to face this deadline. If the original IRA owner died after his or her Required Beginning Date or RBD, whichis generally April 1 of the year after turning 70½, the timetable for withdrawals is longer. If the initial IRA owner designated a beneficiary, the IRA custodian may permit stretch IRA planning, whereby the beneficiary may receive payments based on their own life expectancy.3)
• Are you taking regular 72(t) withdrawals from a retirement plan? You still have to take your required withdrawals; you cannot skip them in 2009.4
• Do you have a defined benefit plan? Sorry – this new law only applies to defined contribution plans. You still have to take your required withdrawals.4
2) Many retirement plan contribution limits rise.
The contribution limits on 401(k) and 403(b) plans have risen by $1,000 – you can put up to $16,500 in either a 401(k) or 403(b) in 2009. Catch-up contributions (permitted if you are age 50 or older) also increase by $500 for both 401(k) and 403(b) plans to a maximum of $5,500 for 2009.5
Contribution limits on SIMPLE plans are also raised by $1,000 to $11,500 in 2009. Compensation amounts for simplified employee pensions (SEPs) go up from $500 to $550 in 2009. The contribution limits on 457 plans rise from $15,500 to $16,500.6
The IRS has not raised annual contribution limits on traditional and Roth IRAs. The annual contribution limits for both types of IRAs remain $5,000 or your taxable compensation for 2009, whichever will be smaller. Generally, up to $1,000 in additional catch-up contributions may be made by those 50 and older.5
3) MAGI limits affecting traditional IRA and Roth IRA contributions increase.
Traditional IRAs: if you have a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your MAGI falls within these ranges.
•
Married Filing Jointly or Qualifying Widow: $89,000-$109,000
Married Filing Jointly or Qualifying Widow: $89,000-$109,000•Single or Head of Household: $55,000-$65,000
Single or Head of Household: $55,000-$65,000•Married Filing Separately: $0–$10,000 (no change from 2008).7
Married Filing Separately: $0–$10,000 (no change from 2008).7If your AGI is above $176,000 in 2009, you cannot claim a deduction for contributions to a traditional IRA.7
21 Things You Need to Know
About the 2009 Tax Laws
