Should I contribute to a Non-Deductible IRA?
If you are:
- an active participant in an employer-sponsored retirement plan
- and are not able to make a tax-deductible contribution to a traditional IRA due to your income level
You may want to consider making a non-deductible IRA contribution.
Here are the considerations:
- You may choose a Roth or Traditional IRA for your non-deductible contribution. The principal withdrawal will be tax-free for the traditional IRA and the whole withdrawal will be tax-free for the Roth distribution, provided you are age 59 ½ and the account has been opened for at least 5 years, whichever is later.
- Having a tax-free source of income in retirement will provide diversification amongst your tax-free retirement choices.
- Tax rates for individuals were thought to decrease upon retirement, but given the current economic situation, it is possible that some individual’s tax rates may not decrease and may in fact, increase.
- Another option is to contribute to a Spousal IRA. If one spouse is not working or not an active participant in an employer plan, that spouse may be able to contribute $5000 ($1000 additional if over 50) to their IRA. You may receive a full tax deduction if joint income is less than $173,000.
Remember, you have until April 15th 2012 to make 2011 contributions. Please contact us for an assessment, on a non-fee basis , of your suitability for this contribution.
2012 Tax Facts to Know
Please refer to this handy guide when making your financial decisions in the year ahead.
Federal Income Tax Rates for 2012
Married and Filing Jointly
|
Taxable Income ($)
|
Tax rate (%)
|
|
0-17,400
|
10
|
|
|
|
17,401-70,700
|
15
|
|
|
|
70,701-142,700
|
25
|
|
|
|
142,701-217,450
|
28
|
|
|
|
217,451-388,350
|
33
|
|
|
|
More than 388,350
|
35
|
|
|
|
|
|
|
|
Single
|
Taxable Income ($)
|
Tax rate (%)
|
|
0-8700
|
10
|
|
8701-35,350
|
15
|
|
35,351-95,650
|
25
|
|
95,651-178, 650
|
28
|
|
178,651-388,350
|
33
|
|
More than 388,350
|
35
|
Capital gains Tax Rates for 2012
Capital Gains Tax rates
|
Asset holding Period
|
Tax Bracket
|
10%
|
15%
|
25%
|
28%
|
32%
|
35%
|
|
Short Term
|
|
10%
|
15%
|
25%
|
28%
|
33%
|
35%
|
|
Long Term
|
|
0%
|
0%
|
15%
|
15%
|
15%
|
15%
|
Estate and Gift Tax Rates for 2012
Estate/Gift Tax Exemptions
|
Estate tax exempt amount
|
$5.12 milliion
|
|
Gift tax exempt amount
|
$5.12 million
|
|
Gift tax annual exclusion amount
|
$13,000*Could increase w/inflation
|
IRA and Retirement Plan Limits for 2012
Maximum IRA Contributions
Maximum contributions you and/or your spouse may contribute to an IRA¹
|
Account type
|
Maximum Amount
|
|
Roth IRA (single)
|
$5,000
|
|
Roth IRA (married, filing jointly)
|
$10,000
|
|
Traditional IRA (single)
|
$5,000
|
|
Traditional IRA (married, filing jointly)
|
$10,000
|
|
Catch-up contributions (single)
|
$1,000
|
|
Catch-up contributions
|
$2,000
|
¹ or compensation, if less. ²Age 50 or older.
Roth IRA Eligibility Phase-Outs
Eligiblity for Roth IRAs is phased out over the following Adjusted Gross Income (AGI) levels:
|
Filing Status
|
AGI Level
|
|
Single
|
$110,000-$125,000
|
|
Married filing jointly
|
$173,000-$183,000
|
|
Married , filing separately
|
$0-$10,000
|
Maximum Retirement Plan Contributions
The amount you can contribute to an employer-sponsored retirement plan generally is the lesser of 100% of your salary or:
Maximum Contributions
|
Plan type
|
Maximum amount
|
|
401(k) and 403(b)
|
$17,000
|
|
Simple IRA
|
$11,500
|
|
401(k) and 403(b) catch-up contributions³
|
$5500
|
|
Simple-IRA Catch-up contributions³
|
$2500
|
³ Age 50 or older.
For general informational purposes only. LPL financial does not provide tax advice or services. Please see your professional tax advisor regarding your specific situation.