Mar 09
 

 


Ken Davis, CLU, ChFC, CFP, CPA. Ken Davis is the former president of the Phoenix Chapter of the Society of CPAs and has taught continuing education for the Arizona Society of CPAs on life insurance and annuities. Your qualified retirement plan needs to be in place before year end to get a deduction for this year. However, you can fund it before the filing due date, including extensions, the next year. The plan administration companies that set this stuff up are slammed right now so get to them quickly! My understanding is some administrators will let the client sign and date the signature page and finish putting down the plan in writing later. If you set up a 401(k) type plan, consider a Roth 401(k) plan as an alternative. There is no current deduction for the contribution but the distributions can come out later tax free. Remembering our concerns about having higher income tax rates in the future, producing tax free income in the future when income tax rates may be higher could be a better strategy than using a traditional 401(k) and taking deductions now. There are other advantages to Roth type plans. There is no forced distribution at age 70 ½ thereby allowing longer income deferral. Many who have compared the tax impact of the traditional vs. Roth type plans have concluded that the net after tax income is effectively the same if tax rates stay the same. So, you may have nothing to lose even if the tax rates do not go up. And for a even better solution to Roth type
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Feb 15
 

 


If you have not already made your Roth or Traditional IRA contribution for 2011, you should plan to do so. The longer the money has to grow, the better off you should be. Traditional IRAs and employer-sponsored retirement plans, such as 401(k) plans, allow you to contribute funds pretax, reducing your 2011 taxable income. Contributions that you make to a Roth IRA or a Roth 401(k) plan are made with after-tax dollars, but qualified Roth distributions are completely free from federal income tax, making these retirement savings vehicles very appealing. For 2011, you can contribute up to 500 to a 401(k) plan (000 if you’re age 50 or older), and up to 00 to a traditional or Roth IRA (00 if you’re age 50 or older). The window to make 2011 contributions to an employer plan closes at the end of the year, while you generally have until the due date of your federal income tax return (not extended) to make 2011 IRA contributions.
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