What's New in 2009
It's a great idea to stay on top of your investment options, but you also need to know about changing rules that affect how much you can save and invest for the future.
Here's a look at some changes for 2009.
1. Employer-Sponsored Retirement Savings Plan Salary Deferral Contribution Limits
| 2008 | 2009 | |
|---|---|---|
| Maximum contribution | $15,500 | $16,500 |
| Catch-up contribution | $5,000 | $5,500 |
Salary deferral contribution limits that apply to 401(k)s and other employer-sponsored retirement savings plans are now indexed to inflation, and can be increased in increments.
The 2008 contribution limit was left unchanged at $15,500 for an individual. However, the limit is increasing to $16,500 for 2009. You can start contributing at the higher level beginning Jan. 1, 2009, if your employer's retirement plan allows.
The catch-up contribution limit for participants age 50 and older is rising to $5,500 for 2009. That means a saver who will be age 50 or older at any time in 2009 may be able to contribute up to $22,000 to an employer-sponsored retirement savings plan for the year.
2. Individual Retirement Account (IRA) Contribution Limits
| 2008 | 2009 | |
|---|---|---|
| Maximum contribution | $5,000 | $5,000 |
| Catch-up contribution | $1,000 | $1,000 |
Contribution limits to Individual Retirement Accounts are indexed to inflation - just like contribution limits for employer-sponsored retirement savings plans.
For 2009, the IRA contribution limit for an individual did not increase. The limit remains at $5,000. Savers age 50 and older can make catch-up contributions of an additional $1,000, unchanged from in 2008.
3. Roth IRA Income Limits
Contributions limited if income exceeds:
| 2008 | 2009 | |
|---|---|---|
| Married Filing Jointly | $159,000 | $166,000 |
| Single | $101,000 | $105,000 |
Contributions not allowed if income exceeds:
| 2008 | 2009 | |
|---|---|---|
| Married Filing Jointly | $169,000 | $176,000 |
| Single | $116,000 | $120,000 |
The Roth IRA is a great savings tool, but it is not available for all savers. Rules phase out contributions once modified adjusted gross income reaches certain levels, and prohibit contributions after income reaches higher levels. There are separate rules for taxpayers in the Married Filing Separately category, so consult a tax advisor for specific details.
4. Your Taxes
Scores of income tax regulations are updated each year, including many that can have a direct impact on your financial planning. Here are some of the major changes for 2009:
Standard deduction on income tax form
| 2008 | 2009 | |
|---|---|---|
| Married Filing Jointly | $10,900 | $11,400 |
| Head of Household | $8,000 | $8,350 |
| Single/Married Filing Separately |
$5,450 | $5,700 |
| Personal and dependent exemption |
$3,500 | $3,650 |
Are you expecting a refund when you file your 2008 tax return? See our Savvy Moves for Tax Refunds story.
5. Estate Taxes
As the old saying goes, nothing is certain but death and taxes. But when the two meet, there is now a lot of uncertainty involved.
The estate tax lifetime exemption - the amount that can be passed on without taxes - is due to rise to $3.5 million in 2009. Be aware that some distributions made in earlier years may reduce the available exemption amount.
Current law calls for the estate tax to be repealed in 2010 and then return in 2011. But Congress is expected to revise the law before 2010, setting new limits.
Estate Tax Exemption
- 2008 $2 million
- 2009 $3.5 million
- 2010 Estate tax repealed
- 2011 $1 million
Take the next step...
Consider increasing your contributions toward retirement! Login to the retirement account at The Principal Retirement Service Center® to increase your contributions to the retirement plan.
Plan Ahead. Get Ahead. 2008 Year-End Planning Guide, #7962082010
