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HOW'S YOUR RETIREMENT SAVINGS HOLDING UP?
It sure has been a tough couple of months for
anyone trying to save for their retirement. Saying that we're
in a bear market is an understatement.
Did you have the courage to look at your most
recent retirement account statements? If so, now's a good time to
recalculate what your retirement accounts will REALLY be worth when
you retire using our On-line
Retirement Calculator. Our calculator lets you figure out
how much income your retirement accounts will provide to you, in
today's dollars, when you ultimately stop working.
So what's the next step now that the markets are
at their four year lows? Whether you're a contrarian by nature,
optimistic about the long-term benefit of owning stocks and mutual
funds, or interest in taking full advantage of the tax benefits of
investing within your retirement accounts, then maximizing your
retirement plan contributions, even during a bear market, is a
must. Below are your retirement saving options for 2002:
Individual Retirement Accounts (IRAs) are the
most basic of all available retirement savings options. This
year, if you're single and earn at least $3,000, you can contribute
up to $3,000 into an IRA. If you're married, and together you
and your spouse earn at least $6,000, then you can each contribute up
to $3,000 into an IRA. Anyone who will be 50 or older by the end of
the year is allowed to contribute an additional $500 into their IRA.
Don't forget that even if you're covered under a
retirement plan at work, you're still eligible to contribute money
into an IRA that year.
Currently, there are two types of IRAs:
TRADITIONAL IRAs: Amounts
contributed to a traditional IRA may or may not be tax deductible,
depending on whether you or your spouse is covered under a retirement
plan at work, but always grow tax-deferred.
ROTH IRAs: Amounts contributed to a
Roth IRA are never tax deductible, but grow tax-free. However,
if you're single and your adjusted gross income (AGI) exceeds
$110,000, or married and your AGI exceeds $160,000, you aren't
eligible to contribute to a Roth IRA that year.
401(k) and 403(b) Plans:
During your working years, there are two ways for
you to save for your retirement. You can participate in a retirement
plan offered by your employer and/or you can contribute to an IRA.
The most popular type of retirement plan offered
by employers these days is a Salary Reduction Plan such as a 401(k)
plan or a 403(b) plan. These plans allow you to contribute up
to $11,000 this year (increased to $12,000 if you'll be age 50 or
older by the end of the year.). Amounts contributed reduce your
taxable earnings and grow tax-deferred. If you're not currently
contributing to a 401(k) plan or 403(b) plan, contact your employer's
benefits office to see whether either plan is available to you, and
how you can sign to take advantage of this important retirement
Options For Self-Employed Individuals:
If you're self-employed, you can save for your
retirement using Keogh Plans, SEP/IRAs, or SIMPLE IRAs. Amounts
contributed to these plans are tax deductible, even if you're covered
under a retirement plan sponsored by another employer.
Retirement plans for self-employed individuals
Type of Retirement Plan
Due Date for Establishing Plan
Maximum Annual Contribution
20% of net income
Due date of tax return, including extensions
20% of net income
$7,000 + 3% of net income
Keogh Plans: The maximum
contribution to Keogh Plans is the lesser of 20% of your net
self-employment earnings or $40,000. Keogh plans need to be set
up prior to December 31st of the year for which the contribution will
SEP/IRAs: The maximum contribution
to a SEP/IRA is the lesser of 20% of net your self-employment
earnings or $40,000. SEP/IRA's can be set up as late as the due
date of the tax return, including extensions, of the year for which
the contribution will be made.
SIMPLE IRAs: The maximum
contribution to a SIMPLE is limited to $7,000 plus 3% of net
self-employment earnings. That means that an individual who has net
self-employment earnings of $7,000 can contribute (and deduct) $7,210
to a SIMPLE. The due date for setting up a SIMPLE is October
1st of the year for which the contribution will be made.
Contributions may be reduced if you participate in a 401(k) plan or a
403(b) plan during the year.
TAX AND FINANCIAL PLANNING
CALENDAR FOR AUGUST, 2002
Saving and Investing
Returns on extension are due 8/15/02
Requests for 2nd extension, Form 2688, due 8/15/02
NEED SOME HELP WITH YOUR TAX PLANNING?
Check out our Directory of
Affiliated Offices to find a CPA near you who specializes in the
tax planning and preparation for young health care professionals.
THE YEAR IS MORE THAN HALF OVER.
If you're married, and you and your spouse are
ready for some basic financial planning, check out
(Brought to You By Your Friends at MDTAXES.COM)
For 2001, the standard deduction for a single individual is $4,550
and for a married couple is $7,600. A person will benefit by
itemizing once allowable deductions exceed the applicable standard
deduction. Itemized deductions include state and local income taxes,
real estate taxes, mortgage interest, charitable contributions, and
unreimbursed employee business expenses. For 2002, the standard deduction has increased
to $4,700 for single individuals and to $7,850 for married couples.
- For 2001, the personal exemption is $2,900. Individuals
will claim a personal deduction for themselves, their spouse, and
their dependents. For 2002, the personal exemption has
increased to $3,000.
- The maximum earnings subject to social security taxes
has been increased to $84,900 in 2002 from $80,400 in 2001.
- The standard mileage rate has been increased to
$.365 per mile in 2002 from $.345 per mile during 2001.
- The maximum annual contribution to a 401(k) plan or
a 403(b) plan has been increased to $11,000 for 2002 from
$10,500 in 2001. And if you'll be 50 or older by December 31,
2002, you can contribute an extra $1,000 into your 401(k) or 403(b)
account this year.
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