Make
your retirement contribution count. Understand your options.
IRA
You
may make contributions to a traditional IRA for 2001 of up
to $2,000, provided you have wage, salary, or net self-employment
earnings and that you have not reached age 70 ½ by
the end of the year. If your earned income is less than $2000,
the contribution limit is 100% of your pay or net earned
income if self-employed. Contributions for 2001 may be made
up to the filing deadline of April 15, 2002, for 2001 returns;
this is the deadline even if you obtain a filing extension
for your 2001 return.
If you are married filing jointly, you may each contribute
up to $2000 to an IRA for 2001, as long as your combined
compensation covers the contributions.
Contributions up to these limits are fully deductible on
your 2001 return if neither you nor your spouse is an active
participant in an employer or self-employed retirement plan.
Spousal IRA contribution on joint return for nonworking
or low-earning spouse.
On a joint return for 2001, the contribution
limit is $2000 for each spouse as long as the combined
compensation of both
spouses is at least $4000. This spousal IRA rule allows a
spouse who earns less than $2000 to "borrow" compensation
from his or her spouse in order to reach the maximum $2000
contribution limit. In figuring their combined compensation
for purposes of the "borrowing" rule, the higher
earning spouse's compensation is reduced by his or her deductible
IRA contribution and by any regular contributions made by
the higher earning spouse to a Roth IRA for the year.
Choosing a SEP
Under a SEP (simplified employee pension plan), you may
contribute a special type of IRA more than is allowed under
the regular IRA rules. Contributions do not have to be made
every year. When you do make contributions, they must be
based on a written allocation formula and must not discriminate
in favor of yourself, other owners with more than a 5% interest,
or highly compensated employees. A salary-reduction arrangement
for employees may be provided under a qualifying SEP established
before 1997 or under a SIMPLE IRA plan established after
1996.
Deductible contributions to your personal SEP account for
2001 may not exceed 13.0435% of your net earnings (less 50%
of self-employment tax liability) or $25,000 whichever is
less.
The deadline for both setting up and contributing to a SEP
is the due date for your return, including extensions. Thus,
if you have not set up a Keogh plan by the end of the taxable
year, you may still make a deductible retirement contribution
for the year by contributing to a SEP by the due date of
your return.
As the title says this is only a snapshot
of the 2001 retirement contributions you can make. For details
about retirement
savings and contributions visit the IRS website, www.irs.gov,
and
read J.K. Lassers, Your Income Tax 2003[or for the current
year, there is a new edition every year].
Lois Center-Shabazz
is the founder of MsFinancialSavvy.com and author of the
3-time award-winning personal finance book, Let's Get Financial
Savvy! ISBN #0971979502.
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