Utilities ready programs for stimulus package

Photo provided Water companies must be "shovel ready" according to one executive when it comes to what they have planned for the money that may come their way through President-elect Barack Obama's proposed stimulus plan.

Fred, can you tell my how much I can deduct for my IRA?

Raymond from Phoenixville.

Dear Raymond, thank you for the question. Tax planning is an activity that is best pursued year-round. You can use the following list of tax strategies to help you better carry out your planning on a regular and ongoing basis.

Before-Tax IRA Earnings. Contributing before-tax earnings to an IRA account can make a big difference in your retirement savings, since you can defer paying taxes on whatever your investment earns in an IRA. If your investment pays dividends or has capital gains distributions (such as a some mutual funds), you avoid paying taxes on these gains. If you expect your tax rate to drop after your retirement, because you have less income, your savings could amount to an even bigger nest egg.

You may contribute up to $3,000 of your earnings or up to $3,500 if you are age 50 or more. If your modified AGI is above a certain amount, your contribution limit may be reduced.

The limit is scheduled to increases to $4,000 in 2005-2007, and $5,000 for 2008. The limit will be indexed (increased with the rate of inflation) in $500 increments starting in 2009.

If you earn an income from wages or your own business and you're under the age of 70-1/2, you can open a traditional IRA. For lower income earners, the contribution itself may be deductible. Contribution can be made for the prior tax year up until April 15.

But you may find that other tax-deferred retirement investments are a better deal. Some other options will be described next week. The IRS publication (590) is available at the web site listed below, under tax center.

SEP IRAs. A "Simplified Employee Pension IRA" is a tax-deferred retirement plan provided by sole proprietors or small businesses, most of which don't have any other retirement plan. Contributions are made by the employer, and unlike the traditional IRA, can be as high as 25 percent of each employee's total compensation, with a maximum contribution of $40,000. For a sole proprietor, this can be a significant opportunity to save for retirement on a tax defer basis. Employees with SEP-IRAs can also invest in regular IRAs.

Aside from the higher contribution limits, SEP-IRAs are subject to the same rules as a regular IRA. Contributions and the investment earnings can grow tax-deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.

Join us next week as we discuss 401(k)s and Roth IRAs.

If you would like more information or would like to ask a question please contact Frederick Hubler at information@creativecapitalsolutions.net or call 610-560-2003. Frederick Hubler is an award winning financial advisor and is president of Creative Capital Solutions (www.creativecapitalsolutions.net), a private financial planning company in Chester County specializing in helping clients acquire, protect and transfer wealth. Securities offered through Capital Analysts Incorporated Member NASD; SIPC

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