You’re saying: “No, it’s too late for me. I filed my 2009 tax return a month and a half ago!” You do have to set up the Roth IRA (Individual Retirement Account) and make the contribution for 2009 by April 15, 2010. However, you don’t have to report it on your tax return: so it doesn’t matter whether or not you filed the tax return! Just be sure to permanently keep the contribution records.
Why am I pushing the Roth IRA over the Traditional IRA? Even though you can’t deduct the contribution to a Roth IRA and realize immediate tax savings, all future withdrawals will be tax free*. Most people are in lower tax brackets at retirement but we can’t count on tax rates remaining as low as the present rates. Our national debt is going through the roof as a result of the wars and the “Great Recession”. Unless the economy starts roaring along, raising tons of revenue along the way, the debt will have to be paid down through increases in the tax rates. At the very least, you might consider hedging by having some of your retirement income tax free.
You can still contribute to a Roth even if you’ve contributed the maximum amount to a Roth 401(k). Only your income and a full contribution to a Traditional IRA can get in the way of making a 2009 Roth IRA contribution. If you are single and had a 2009 modified adjusted gross income** (MAGI) of less than $105k, you qualify to make a full contribution of $5,000 ($6,000 if you are 50 or older). If you are married filing jointly (MFJ) and the 2009 MAGI is less than $166k you qualify to make a full contribution. There are phaseout ranges that proportionally reduce the contribution, by a percentage of the full contribution amount. If your MAGI is more than $120k for a single or $176k for MFJ, you cannot make a Roth contribution for 2009.
For the do-it-yourself investors, you can still open a Roth IRA account for 2009 through a discount broker. Hurry though – it won’t be cool to wait until the 15th (and may not even be possible depending on where you go)! You can self-direct the investments through this type of account. If you need help deciding on appropriate investments for the account, a Garrett Planning Network professional can do the research, for an hourly fee as part of a financial plan. If you decide to go this route: set up the Roth IRA with the discount broker and fund it by April 15th; let the money sit in the account until you’ve had a chance to consult with a financial planner; after you receive your plan, use the cash in the account to invest in the appropriate funds. Visit www.garrettplanningnetwork.com to find an advisor near you
This is a general, educational discussion and should not be considered investment advice. You should only pursue this course of action, if appropriate, after considering your situation.
If you’re interested in contributing (for 2009) to a Traditional IRA and you’ve already filed your 2009 income tax return, you will have to have an amended return (1040x) filed if you qualify for a deductible contribution. If, however, the contribution will be non-deductible, you only have to send the IRS a completed Form 8606.
*All withdrawals will be tax free as long as you’ve had the account 5 years and the withdrawals are made after age 59 1/2. [The 5 years start January 1st of the year for which the original contribution was made. If you made the contribution for 2009 on April 10, 2010; the 5 year period would start January 1, 2009.] There are a few more exceptions which your financial or tax advisor can explain. Since your contributions to the Roth have already been taxed, you can withdraw the principal at anytime with no penalty, unless the contribution was conversion dollars from a Traditional IRA, then you have to wait 5 years for the principal withdrawal to be penalty-free.
**Check with your tax advisor or a financial planner for help in determining your MAGI.
Visit www.duncanfinancialplanning.com to find out more about William and his financial planning philosophy.
