It's time to start making plans for next year


Adjustments to tax brackets, thresholds and other rules might force rethinking

November 16, 2008|By Janet Kidd Stewart | Janet Kidd Stewart,Chicago Tribune

Is your retirement plan ready for 2009?

Whether you're saving for retirement or already living in it, you will need to be aware of the annual adjustments to tax brackets, retirement-plan rules, Social Security thresholds, pension limits and health-care savings plans.

Most of those numbers are available, so it makes sense to make some plans for the coming year:

IRAs and workplace plans:

Individual retirement account contribution limits are holding at $5,000 for 2009 (plus another $1,000 if you are 50 or older), but you can contribute $16,500 (or $22,000 for 50 and older workers) in workplace 401(k) and 403(b) plans. That's up from $15,500 (or $20,500) for 2008.

For the self-employed, Simple IRA contribution limits rise $1,000, to $11,500, in 2009 (or $14,000 for those 50 and up), and the maximum Simplified Employee Pension plan, or SEP IRA, contribution limit rises to $49,000 from $46,000 in 2008.

A big jump occurred in eligibility levels for Roth IRAs. For married taxpayers filing jointly, Roth eligibility phases out at modified adjusted gross incomes between $166,000 and $176,000 for 2009, up from a range of $159,000 to $169,000 this year.

Income limits on conversions from traditional to Roth IRAs are scheduled to expire in 2010, so you might want to think about adding to traditional accounts this year ahead of the new rules.

And for workers who have access to Roth 401(k) plans at work, and who also expect tax rates to rise in the future, 2009 might be the year to start diversifying your contributions among plans. Roth 401(k) holders contribute after-tax income, but the funds and earnings are withdrawn tax-free in retirement. If you think your tax bracket could be higher in the next few years, contributing to a workplace Roth in 2009 would put those taxes behind you.


The annual gift-tax exclusion rises to $13,000 in 2009, up from $12,000 this year. The exclusion is important to retirees who are concerned about estate-planning issues.

Tax-bracket thresholds also are rising because of inflation, a change that will be keenly felt by retirees as they plan their taxable income for IRA distributions and Social Security purposes. For someone trying to stay in the 15 percent bracket, for example, the income threshold moves to $67,900 in 2009, from $65,100 in 2008.

Social Security/Medicare :

Higher-income workers will see more of their wages taxed for Social Security. The taxable wage base for 2009 jumps to $106,800, from $102,000 this year.

The income limits that trigger reductions in Social Security payments also rise for 2009. If you are under full retirement age for all of 2009 and are collecting benefits, you will be hit with a benefit cut on income earned over $14,160, up from $13,560 this year. If you will hit full retirement age next year, in the months before your birth month your Social Security benefits will be reduced if your earnings exceed the annualized rate of $37,680, up from $36,120. After full retirement age, benefits aren't reduced.


The maximum insurance benefit for participants in underfunded pension plans terminating in 2009 is $54,000 per year for those who retire at 65, up from $51,700 in 2008, according to the Pension Benefit Guaranty Corp.

The total maximum annual defined-benefit pension in plans that qualify for certain tax benefits rises to $195,000, up from $185,000 in 2008.

Health-savings accounts:

Individuals 55 and older can contribute $1,000 more to health-savings accounts as a catch-up contribution in 2009, according to the Treasury Department. Otherwise, the maximum annual HSA contribution for self-only coverage is $3,000. For family coverage the limit is $5,950.

Long-term care:

For 2009, people 40 and younger by the end of the year may include up to $320 in premiums, although you still will have to meet the 7.5 percent of adjusted gross income test for medical expenses to be a deduction. Between ages 41 to 50, you can include $600; 51 to 60, $1,190; 61 to 70, $3,180; 71 and up, $3,980.

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