Financial Ducks In A Row • Independent financial advice: IRA, Social Security, income tax, and all things financial

Posted in: 2012 tax year, Social Security, social security administration, social security tax, tax.
Tagged: Social Security · social security administration · social security tax

March 15 is the Deadline for FSA Claims

Feb 28th, 2011

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FSA SRM crankset by Grayskullduggery If you’re a participant in your employer’s Flex-Spending Account plan (FSA), whether for health-care or dependent care cost reimbursement, you have a limited amount of time to claim the monies that have been set aside in your plan.

The way these plans work is that you voluntarily decrease your income by a certain amount, generally paycheck by paycheck, and that amount is placed in a separate account. Over the course of the calendar year, you can request reimbursement from your FSA funds for qualified expenses that you’ve incurred.

If it’s a health-care FSA account, you can request reimbursement for your healthcare deductibles, co-payments, and co-insurance costs – literally any health-care expense that is not covered (paid) by other insurance. There are limits, though: beginning with 2011, you cannot be reimbursed for non-prescription (over the counter) medications.

If the FSA account is for dependent-care expenses, you can request reimbursement for your qualified child-care or adult daycare expenses for your dependents.

The income that you have diverted into the FSA account is pre-tax (just like your 401(k) contributions), so your income is reduced when you participate in these plans. The income is still subject to Social Security and Medicare tax, but not ordinary income tax.

Generally speaking, most FSA plans are set up to allow for a 2½ month grace period for reimbursement from the plans. This means that, for any particular calendar year that you are participating in a FSA plan, you must request reimbursement of your funds by March 15 of the following year. If you do not request your funds by this deadline, you lose the opportunity to retrieve these funds forever.

Photo by Grayskullduggery

Posted on Feb 28th, 2011

by author: jblankenship.

Posted in: #noTOP, dependent care, flex-spending, FSA, health insurance, health plans, health savings.
Tagged: dependent care · flex-spending · FSA · health plans · health savings

Tax Benefits For Parents

Feb 21st, 2011

2 comments

As parents, we spend a lot of money raising our children – from basic needs such as food, housing, doctor bills, and clothing, to education, daycare, soccer teams and lessons on the clarinet – it seems like the list is endless.

Since the kids don’t generally pay you back (at least in dollars), the IRS steps in to help out. There are several tax benefits that you may be eligible for just because the little urchins are in your care… and here’s a list of ten tax benefits that the IRS has put together (taken from IRS Tax Tip 2011-18):

Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.
Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.
Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment of farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.
Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.
Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.
Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970, Tax Benefits for Education.
Student Loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.
Self-employed Health Insurance Deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent. For more information see the IRS website.

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Posted on Feb 21st, 2011

by author: jblankenship.

Posted in: #noTOP, 2010 Tax Act, earned income credit, education expenses, irs, tax, tax credits.

The Roth Recharacterization

Feb 16th, 2011

1 comment

420px-Fruchos_character_at_Norwood_Christmas_Pageant_2008 1/1/2018 Note: Recharacterization of Roth conversion is no longer allowed as of tax year 2018. The last tax year that you could recharacterize Roth conversions is 2017. See Roth Recharacterization is No Longer Allowed for more details.

After all the hoopla around Roth conversions in 2010, now is the time to consider whether or not a recharacterization is in your future. So what is a recharacterization, and how does it work?

Recharacterization is the “backing out” of your Roth conversion. In other words, you can literally make the conversion as if it had never been done at all, with your money back in the traditional IRA where it started.

Why would you want to do that? Here’s an example: let’s say you converted $100,000 to a Roth IRA in 2010 and you are ready to pay the tax on your 2010 return (you elected out of the spread to 2011 and 2012). Except that now, your investment in the Roth IRA has dropped in value to only $50,000 – and you still owe tax on the conversion of $100,000! Yikes – that’s just totally wrong!

Recharacterization can help to save you in this situation. As long as you act before the due date of your return (including extensions), you can put recharacterization to work for you, moving the $50,000 back to the traditional IRA. It will be as if nothing was done at all, and no taxes are owed.

Actually, as far as the IRS is concerned you are not moving $50,000 back, you’re moving the original $100,000 and the gains or losses on that original $100,000, which happens to equal $50,000.

Recharacterization Strategy

One way to use this to your advantage is to split your Roth conversions up into separate accounts by specific types of assets, so that if one of the asset types (or more) happens to drop significantly in value, you can recharacterize the conversion on only that account, leaving the other account(s) intact.

This would help with your record-keeping, since any amount that you recharacterize from a Roth to a traditional IRA must include the gains or losses that are attributable to the recharacterized amount. Of course, you wouldn’t likely recharacterize unless you had net losses in the Roth account – although you might find that recharacterization is a good option if you came up short of cash to pay the tax on the original conversion.

Photo by Wikimedia

Posted on Feb 16th, 2011

by author: jblankenship.

Posted in: #noTOP, forbes.com, income tax, investing, IRA, roth conversion, Roth conversion, Roth IRA, roth ira conversion, tax.
Tagged: IRA · tax

Why Your Paycheck is Changing in 2011

Feb 14th, 2011

1 comment

paycheck by mandiberg After the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Act) late last year, there were certain changes that will impact your take-home pay in 2011, versus what you were seeing in 2010.

For starters, although the 2010 Tax Act extended the tax rates to be the same as they were in 2010, as always there are increases in the tax tables which have a minor impact on your take-home pay. Typically, this change will increase your tax withheld, reducing your take-home pay.

The 2010 Tax Act also included a provision to reduce the withholding requirement for Social Security from 6.2% to 4.2%, which will have the effect of increasing your take-home pay by 2%.

One other change to your paycheck came about because of a provision that was not included to be extended as a part of the 2010 Tax Act – the Making Work Pay credit, which provided a $400 credit for most all wage earners. This will have the effect of reducing your take-home pay.

Another item that may have impacted your take-home pay for 2011 is the Advance Earned Income Credit payment. In the past (through the end of 2010), you could request and receive a portion of the Earned Income Credit with each paycheck instead of waiting until you file your tax return. This provision was eliminated at the end of 2010.

Lastly, if you happen to live in one of the states that has increased the state income tax for individuals – say, for example, Illinois, where I live. In Illinois, your state income tax withholding has increased from 3% to 5%, taking away another 2% of your income in withholding.

Photo by mandiberg

Posted on Feb 14th, 2011

by author: jblankenship.

Posted in: #noTOP, 2010 Tax Act, 2011 tax year, income tax, tax.
Tagged: 2010 Tax Act · tax

4 rules to break – for now

Feb 11th, 2011

http://www.smartmoney.com/spending/budgeting/4-traditional-money-rules-to-break–for-now-1296858154544/

3 comments

As you may know if you’ve been reading here for very long, from time to time I review financial rules of thumb – today I’ve got a bit of a twist on the “principles of pollex” concept:

Here’s a very interesting article that I found today that tells about some of the old, time-honored sage pieces of advice that aren’t necessarily true – for the time being.

Enjoy – I’ll be back next week!

Posted on Feb 11th, 2011

by author: jblankenship.

3 comments already - add to the conversation!

Posted in: fiduciary, Links, principles of pollex, rules of thumb.
Tagged: fiduciary

An Oldy – But a Goody

Feb 7th, 2011

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I’m traveling this week, so instead of the usual posts that I put up for you thrice a week I thought I’d take the easy way out provide you with a link to a post from the past that I think is particularly useful and that perhaps some of you could get benefit from.

I originally posted this one a little over a year ago, and it’s been one of the more popular articles – it’s all about how long to save various documents. During tax season we all go through the agony of reviewing our old records and looking in vain at the piles from years past, so maybe this article will help you to clear out some of the clutter and maintain only the important ones… And if you’re not saving the right records, maybe you’ll be inspired to start.

Here’s the link – hope you get some good out of it: Financial Recordkeeping – How Long Do I Keep This?

Posted on Feb 7th, 2011

by author: jblankenship.

Posted in: financial planning, Links.
Tagged: financial planning

The Making Work Pay Credit

Feb 2nd, 2011

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red and green holiday chocolate candies by Rainbow Photos Many (or most) working taxpayers will be eligible to receive a special credit on their 2010 tax return, called the Making Work Pay Credit. The IRS has recently produced their Tax Tip 2011-15 which explains five important provisions about the Making Work Pay Credit:

The Making Work Pay Credit provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.
Most workers received the benefit of the Making Work Pay Credit through larger paychecks, reflecting reduced federal income tax withholding during 2010.
Taxpayers who file Form 1040 or 1040A will use Schedule M to figure the Making Work Pay Tax Credit. Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.
Taxpayers who file Form 1040-EZ should use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Credit.
You cannot take the credit if your modified adjusted gross income is $95,000 for individuals or $190,000 if married filing jointly or more, you can be claimed as a dependent on someone else’s return, you do not have a valid Social Security number or if you are a nonresident alien.

Be on the lookout for this important provision as you prepare your return for 2010.

Photo by Rainbow Photos!

Posted on Feb 2nd, 2011

by author: jblankenship.

Posted in: 2010 Tax year, income tax, income tax credit, tax, tax credits.
Tagged: tax

Lifetime Income Disclosure

Jan 28th, 2011

2 comments

lifetime supply by Christina Welsh (Rin) There is a piece of legislation hanging around in the Senate that makes a good deal of sense, and really shouldn’t cause too much grief to implement in the long run.

This particular bill, introduced by Senators Bingaman (D-New Mexico), Isakson (R-Georgia), and Kohl (D-Wisconsin), is called the Lifetime Income Disclosure Act, and it proposes that the administrators of ERISA-approved retirement plans provide for their participants a disclosure of the “annuity equivalent” of the total benefits that each participant or beneficiary has accrued within the retirement plan.

What this means is that, for likely the first time for most folks, an estimate would be provided to them with their statement that outlines what that lump sum means in terms of real, annualized income replacement in retirement.

Specifically, the government would establish certain assumptions about the annuity value of a lump sum, given the participant’s age, and from those assumptions a lifetime income stream valuation would be derived.

This could be an important provision giving folks an eye-opener into what they could expect from their 401(k) plan when they retire. Most folks won’t actually purchase the annuity described for many reasons, one being that in order to purchase an annuity you must deal with an annuity salesman. But this illustration of the potential income value is a good step in the right direction for folks to gain a better understanding of their present position.

Of course, just knowing this fact won’t necessarily resolve our retirement savings shortfalls, but maybe it would help to inspire folks to save more and spend a little less. Every little bit can help.

If you agree with me that this provision makes sense and if you’re inclined to do so, write or call your representatives in Congress and tell them so. Unless you speak up, they won’t hear you.

Photo by Christina Welsh (Rin)

Posted on Jan 28th, 2011

by author: jblankenship.

Posted in: 401 k, 403 b, fiduciary, financial planning, legislation, rant, retirement accounts, retirement plan.
Tagged: fiduciary · financial planning · retirement plan

Over-The-Counter Drugs via Your Flex-Spending Account

Jan 24th, 2011

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sookiepose by 416style In case you missed it when I wrote about Guidance from the IRS on Flex Spending Plans – one of the changes you’ll have to deal with beginning with 2011 is that you can no longer use your Flex-Spending Account (FSA) to reimburse yourself for over-the-counter drugs like you’ve been able to do in the past.

However, there is a way to get the over-the-counter (OTC) drugs that your physician recommends and use your FSA funds to pay for it… if your physician gives you a prescription for it. Even though the IRS has disallowed the use of FSA funds for OTC drugs, if your physician gives you a prescription for the OTC drug, your FSA can be used to pay for the drug.

There are some rules though: first, the prescription has to provided to the pharmacist prior to the purchase, and the pharmacist must dispense the drug just as if it were a regular prescription, with a Rx number assigned to the prescription. The records must be maintained by the pharmacy and the taxpayer and available to the IRS if necessary. FSA debit cards (and HSA debit cards) can also be used for this purpose, as long as all of the requirements are met.

Photo by 416style

Posted on Jan 24th, 2011

by author: jblankenship.

Posted in: 2011 tax year, flex-spending, FSA, health insurance, over-the-counter drug, tax.
Tagged: tax

Date Set for Processing Delayed Returns

Jan 21st, 2011

1 comment

go wild by hillary h The IRS announced on January 20, 2011, that the delayed returns – those that have itemized deductions on Schedule A, include higher education tuition and fees deductions on Form 8917, and/or that include the educator expenses deduction, can begin processing on February 14.

Many processors (commercial software) will accept these returns now and send them to the IRS beginning on February 14, so there is no reason to delay. And if your processor (or tax guy or gal) doesn’t allow for the early acceptance, you can still get your information in to them and they’ll submit it when the time is right.

This delay was explained in the article that I wrote earlier about how some returns would be delayed this year due to the late passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Photo by hillary h

Posted on Jan 21st, 2011

by author: jblankenship.

Posted in: 2010 Tax Act, 2010 Tax year, software, tax.
Tagged: 2010 Tax Act · tax

Credit for Energy Saving Home Improvements for 2011

Jan 17th, 2011

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600px-Windfarm_112 This tax credit has undergone a change from previous years. In 2010, for example, you could achieve a credit for as much as 30% of the cost of your energy-saving home improvements, with a ceiling of $1,500.

Beginning January 1, 2011, the credit rate is now just 10%, and the ceiling has been lowered to $500. Something important to keep in mind about this credit: any credit claimed in prior years (2009 and/or 2010) will be used to reduce your ceiling. In other words, if you claimed the full credit (or any amount up to $500) on a previous year’s tax return, you have no energy-saving home improvement credit available to you.

In addition to the changes above, there are specific item caps in place as well. For example, if you are putting in a new furnace or water heater, the credit for those units is capped at $150. If you’re putting in a biomass fuel stove (those are the corn-fueled or pellet-fueled furnaces), then you can claim up to a $300 credit against the purchase price. And if you’re putting in new energy-efficient windows, the cap is $200.

One area that the credit remains at 30% is with alternative energy systems, such as wind-power or solar panels, so if you’re really into the alternative energy option this could be helpful.

Photo by Wikimedia

Posted on Jan 17th, 2011

by author: jblankenship.

Posted in: #noTOP, 2011 tax year, alternative energy, energy, income tax credit, tax, tax credits.
Tagged: tax

Book Review: Small Business Taxes Made Easy

Jan 14th, 2011

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This book was a surprise to me – I did not expect to find such a thorough guidebook on the process of starting up a small business, but that’s what Small Business Taxes Made Easy is. Author Eva Rosenberg, (“TaxMama” to her devotees) has not only the experience, but also the in-depth understanding of both the small business and the small business-person to lead you through this process and help you to succeed, quite possibly in spite of yourself.

The title of the book is misleading, as the first several chapters of the book have little to do with taxes and much to do with all of the administrivia that you need to go through when setting up a small business. In fact, you really don’t get to tax matters at all until about page 70 (of 261) in the book.

The first few chapters take you through the concepts of business planning – areas that very few small businesses pay any attention to at all. Clearly Rosenberg has had her share of real-world experience with small business owners going through this process. She has developed very useful checklists, included in the book, for following step-by-step through the process of business development.

Now, one might say that the process Rosenberg describes is overkill – in fact, a colleague made the comment that “No one creates an advisory board!”… but quite possibly that’s part of why so many small businesses fail in the first year or two.

Secondly, don’t think that this book is solely for the new small business startup. If you happen to be one of those lucky small businesses that has made it past the first year or so without a formalized plan – you’d be doing yourself a favor to review and pay attention to this book’s recommendations as well.

This doesn’t mean that I give the tax-specific portions of this book short shrift, either. Rosenberg treats all of the major components of tax “preparedness” with due consideration. From explaining exactly what should be considered income (versus capital, for example) to who should be considered an employee, with separate chapters set aside to explain what’s deductible and what’s not, use of your home for your business, and the business use of an automobile, this book covers it all.

There is a separate chapter specifically dealing with the issues you might face with your online-only venture, as well, and if you’re in this space or expect to operate in the internet realm in the future, you should pay close attention. TaxMama has been on the internet for over fifteen years (in evolving forms) and as a tax professional she has seen it all, literally. She takes you through the concept of nexus (location), internet sales taxes, and legal issues that you might come across. This chapter (like all the chapters in this book) comes with a checklist at the start and a list of specific resources (including the URLs) at the end of the chapter – vetted resources that are literally worth the price of the book on their own.

All in all, it’s my opinion that if you are starting a business or have already started a business and you’re still hammering out the kinks – you could definitely do worse than to read Small Business Taxes Made Easy. Heck, even if you’ve been in business for a while you can benefit from this book – I picked up a few pointers myself.

The above book review is part of a series of reviews that I am doing in an arrangement with McGraw-Hill Professional Publishing, where MH sends me books with the only requirement being that I read the book and write a review – like it or not. If you find the information in this review useful, let me (and McGraw-Hill) know!

Posted on Jan 14th, 2011

by author: jblankenship.

Posted in: #noTOP, Book review, tax.
Tagged: tax

Earned Income Tax Credit 2011 Style

Jan 10th, 2011

2 comments

800px-Bunte-kabel There have been a few changes to the Earned Income Tax Credit (EITC) for 2011 and years beyond. Some of these changes are pretty significant, others are more of the common variety.

No More Advance Payments

In the past, if a taxpayer was likely to be eligible to receive the EITC on filing his or her return, the law allowed the taxpayer to apply for and receive advance payment of a portion of the credit. This is because the credit is refundable – even if you don’t owe any tax on your tax return, you’ll get something back with the EITC.

With the passage of the Education Jobs and Medicaid Assistance Act of 2010 signed into law August 10, 2010, the Advance payment of EITC was repealed, effective after December 31, 2010.

Third-Child EITC

The American Recovery and Reinvestment Act (ARRA) increased the EITC by 5% for families with three or more children. The original law provides for EITC equal to 40% of the family’s first $12,570 when there are two or more children, and ARRA provided this additional credit for a third child (or more). This provision was set to expire at the end of 2010, but the 2010 Tax Act extended the provision through the end of 2012.

Annual Limits

For 2011, the maximum EITC that can be claimed is increased to $5,751 from the 2010 level of $5,666. In addition, the maximum income limit for EITC is increased to $49,078, up from $48,362 for 2010. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more children.

Photo by Wikimedia

Posted on Jan 10th, 2011

by author: jblankenship.

Posted in: 2010 Tax Act, 2011 tax year, 2012 tax year, earned income credit, EIC, EITC, income tax credit, tax.
Tagged: 2010 Tax Act · tax

Baby Boomers Start Medicare

Jan 7th, 2011

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good old larkey by anslatadams As of 12:01am EST on January 1, 2011, the very first Baby Boomer reached age 65… and that means that the era of Baby Boomers receiving Medicare has officially commenced.

It is estimated that, during the period when Boomers are reaching age 65, between now and roughly 2030, the number of folks on the Medicare rolls will double. Presently there are approximately 40 million Medicare recipients, and that number is expected to be around 80 million in 20 years.

These incredible numbers will cause major challenges in funding the system – along with serious challenges in controlling the overall costs of healthcare during this period. The rate of increase in the over-65 population will cause dramatic changes in the healthcare system in terms of capacity, costs, and controls.

The new healthcare law passed earlier this year created an Independent Payment Advisory Board, which is supposed to provide guidance on how to control Medicare spending. This will have to be accompanied by system-wide strategies to bring down the costs of medical care.

The only alternative to reducing costs is to increase taxes, and we all know how bitter of a pill that is.

Photo by anslatadams

Posted on Jan 7th, 2011

by author: jblankenship.

Posted in: #noTOP, baby boomers, Medicare, medicare.

2011 IRA MAGI Limits – Married Filing Separately

Jan 1st, 2011

1 comment

Note: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on that page to determine eligibility.

For a Traditional IRA (Filing Status Married Filing Separately):

If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions.

If you are covered by a retirement plan at your job and your MAGI is less than $10,000, you are entitled to a partial deduction, reduced by 50% for every dollar (or 60% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If you are covered by a retirement plan at your job and your MAGI is more than $10,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2011. You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

If you are not covered by a retirement plan but your spouse is, and your MAGI is less than $10,000, you are entitled to a partial deduction, reduced by 50% for every dollar over the lower limit (or 60% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

Finally, if you are not covered by a retirement plan but your spouse is, and your MAGI is greater than $10,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2011. You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

For a Roth IRA (Filing Status of Married Filing Separately):

If your MAGI is less than $10,000, your contribution to a Roth IRA is reduced ratably by every dollar, rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If your MAGI is $10,000 or more, you can not contribute to a Roth IRA.

Photo by Wm Jas

Posted on Jan 1st, 2011

by author: jblankenship.

Posted in: #noTOP, 2011 tax year, IRA, magi, retirement plan, Roth IRA, roth ira.
Tagged: IRA · retirement plan

2011 MAGI Limits for IRAs – Married Filing Jointly or Qualifying Widow(er)

Jan 1st, 2011

1 comment

For a Traditional IRA (Filing Status Married Filing Jointly or Qualifying Widow(er)):

If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions.

If you are covered by a retirement plan at work, and your MAGI is $90,000 or less, there is also no limitation on your deductible contributions to a traditional IRA.

If you are covered by a retirement plan at your job and your MAGI is more than $90,000 but less than $110,000, you are entitled to a partial deduction, reduced by 25% for every dollar over the lower limit (or 30% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If you are covered by a retirement plan at your job and your MAGI is more than $110,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2011. You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

If you are not covered by a retirement plan at your job, but your spouse IS covered by a retirement plan, and your MAGI is less than $169,000, you can deduct the full amount of your IRA contributions.

If you are not covered by a retirement plan but your spouse is, and your MAGI is greater than $169,000 but less than $179,000, you are entitled to a partial deduction, reduced by 50% for every dollar over the lower limit (or 60% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

Finally, if you are not covered by a retirement plan but your spouse is, and your MAGI is greater than $179,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2011. You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

For a Roth IRA (Filing Status of Married Filing Jointly or Qualifying Widow(er)):

If your MAGI is less than $169,000, you are eligible to contribute the entire amount to a Roth IRA.

If your MAGI is between $169,000 and $179,000, your contribution to a Roth IRA is reduced ratably by every dollar above the lower end of the range, rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If your MAGI is $179,000 or more, you cannot contribute to a Roth IRA.

Photo by Wikimedia

Posted on Jan 1st, 2011

by author: jblankenship.

Posted in: #noTOP, 2011 tax year, IRA, magi, retirement plan, roth ira, Roth IRA.
Tagged: IRA · retirement plan

2011 MAGI Limits – Single or Head of Household

Jan 1st, 2011

2 comments

For a Traditional IRA (Filing Status Single or Head of Household):

If you are not covered by a retirement plan at your job, there is no MAGI limitation on your deductible contributions.

If you are covered by a retirement plan at work, if your MAGI is $56,000 or less, there is also no limitation on your deductible contributions to a traditional IRA.

If you are covered by a retirement plan at your job and your MAGI is more than $56,000 but less than $66,000, you are entitled to a partial deduction, reduced by 50% for every dollar over the lower limit (or 60% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If you are covered by a retirement plan at your job and your MAGI is more than $66,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2011. You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

For a Roth IRA (Filing Status Single or Head of Household):

If your MAGI is less than $107,000, you are eligible to contribute the entire amount to a Roth IRA.

If your MAGI is between $107,000 and $122,000, your contribution to a Roth IRA is reduced ratably by every dollar above the lower end of the range, rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If your MAGI is $122,000 or more, you can not contribute to a Roth IRA.

Photo by One Tree Hill Studios

Posted on Jan 1st, 2011

by author: jblankenship.

Posted in: #noTOP, 2011 tax year, IRA, magi, retirement plan, roth ira, Roth IRA.
Tagged: IRA · retirement plan

Review of 2010 Stats

Dec 31st, 2010

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Ed. Note: As in past years, I’m taking a break from my normal business of posting retirement, tax and other personal financial planning topics to report on the blog itself and the statistics we’ve seen in this, the 7th year of publication for the blog. I’ll be back to regular programming with the next entry. – jb

Over the past year, this blog has seen a huge amount of growth – you could call this the year of the tax law change more than anything, as you’ll see from the stats below. Through your comments and email questions I have come to meet literally hundreds of you – and we’ve learned a lot together. I’ll take this opportunity to thank you for your tremendous support by reading, asking questions, and making comments on what I have written. I hope these interactions have been as fulfilling for you as they have been for me.

Planned for 2011: more of all the wonderful income tax, IRA, Social Security and other retirement, investment and financial planning articles that you’ve come to expect; completion of the Social Security Owner’s Manual and a second edition of the IRA Owner’s Manual; guest experts from time to time will contribute posts on areas complimentary to the subjects of this blog (contact me if you’d like to write an article, I’m always looking for more!); book reviews as a part of an arrangement with McGraw-Hill (more on this in the new year); and continuing the pace of approximately 175 to 200 posts throughout the year. Please pass along any suggestions for new topics that you’d like to see written up and discussed.

Listed below are the Getting Your Financial Ducks in a Row end of year statistics and Top Ten lists for 2010. A huge THANK YOU goes out to everyone that has taken part in this blog over the years!

General Statistics for 2010

177 total posts
445 comments & trackbacks
75,774 page views – averaging 207 per day (2009: 9,386 views, 26 per day)
250 RSS subscribers

Top 10 Referrers for 2010

Top 10 Search Engine Terms for 2010

charitable contributions from ira
irs life expectancy tables
expiring tax provisions
social security file and suspend
student loan interest deduction
social security earnings test
windfall elimination provision
social security spouse options
government pension offset
qualified domestic relations order 401k

Your 2% Opportunity in 2011

Dec 31st, 2010

1 comment

By now you’ve heard the news from the 2010 Tax Act – one of the provisions is that during calendar year 2011, the Social Security withholding tax is reduced from 6.2% to 4.2%. This means that you have an additional 2% of your income, up to the $106,800 limit, available to you to do with as you wish. This is your opportunity to make a splash!

I think it would be a very good idea to bump up your 401(k) deferral by 2% if you aren’t already maxed out. If you have maxed out your 401(k), you could use the extra money to contribute to your Roth IRA, or put some money into your taxable investment account. No matter what, since this money was originally intended to be for retirement (if it had been withheld for Social Security, it would have gone to *someone’s* retirement), you should put it toward some variety of savings or debt paydown.

It’s not often that you get the opportunity to take control of your Social Security withholding, and many folks are chomping at the bit to do just that.

Don’t waste your opportunity – this is the chance you’ve been waiting for!

Photo by {Guerrilla Futures | Jason Tester}

Posted on Dec 31st, 2010

by author: jblankenship.