Date: 2008-11-12
Why the Best Time to Contribute to Your Retirement Account Might Be Now
Jackson Hewitt Helps Taxpayers Understand the Benefits of Additional Year-End Contributions to Retirement Savings
PARSIPPANY, N.J.,
Nov. 12 /PRNewswire-FirstCall/ -- With the stock market showing
unprecedented losses over the past month, many Americans are seeing
their once healthy retirement savings dwindle. However, now might be
the best time to contribute to your 401(k), SEP or Roth and Traditional
IRAs.
"This
year, more than ever, taxpayers will be looking to get the most out of
their tax refund," said Mark Steber, vice president of tax resources,
Jackson Hewitt Tax Service(R). "One of the easiest ways to increase
your tax refund or reduce your balance due is to contribute to an
individual or employer-sponsored retirement plan. Even a few hundred
dollars contributed between now and the end of the year can positively
impact your tax return."
The
three most popular retirement savings plans have pre- and post-
retirement tax benefits. Employer-sponsored retirement plans, plans for
self-employed persons and individual retirement accounts all allow
taxpayers to lower their tax liability or realize tax savings in some
way.
Employer-Sponsored Retirement Plans
Company-sponsored
accounts such as 401(k) or 403(b) plans allow employees to reduce the
amount of their taxable income through payroll deductions. As these
accounts grow, the earnings and contributions are tax-deferred.
Withdrawals are subject to taxes but only the amount withdrawn is
taxed. The remainder of the money stays in the account and the earnings
continue to be tax-deferred. You can save on taxes now by contributing
even a small amount of money, thereby lowering your overall taxable
income and your total tax liability to the government. Note that for
2008, the maximum that can be contributed is $15,500 (workers over 50
may contribute up to an additional $5000 in catch-up contributions).
Some companies match a percentage of the employee's contribution,
effectively increasing the investment.
Self-Employed or Small Business Retirement Plans
Simplified
Employee Pension Plans (SEP) are available for small business owners to
contribute to their individual and their employees' IRAs. The 2008
limit for SEP contributions is $46,000. These contributions are tax
deductible for the employer. Traditional IRA rules regarding early
withdrawal and taxable income after age 59.5 are applicable.
Individual Retirement Accounts
Traditional
and Roth IRAs are also popular retirement savings vehicles with
tax-deferred savings growth. Many banks and investment firms offer such
accounts and allow investors to apply for and open traditional and Roth
IRAs online. An IRA can be funded until April 15 and will still qualify
for tax benefits for the prior tax year. The maximum contribution for
2008 to an IRA is $5,000 ($6,000 for those 50 and above).
Traditional
IRA contributions may be fully tax-deductible if a taxpayer has earned
income and is not covered by an employer retirement plan. If the
taxpayer is covered by an employer retirement plan and has an adjusted
gross income (AGI) of less than $53,000 ($85,000 if married filing
jointly), the IRA contribution may be fully deductible. If the taxpayer
is covered by an employer provided plan and their AGI is between
$53,000 and $63,000 ($85,000 and $105,000 if married filing jointly),
the deduction is phased-out. No deduction is allowed for taxpayers who
are covered by an employer plan if their AGI exceeds $63,000 ($105,000
if married filing jointly). You will be assessed a 10% additional tax
if you withdraw funds before you reach age 59.5. Any withdrawals after
that age are not subject to the additional 10% tax. You may not have to
pay the additional tax if the money is withdrawn for certain reasons
such as funds (up to $10,000) to buy a first home and higher education
expenses for yourself, spouse, or dependent.
Roth
IRAs are not tax-deductible but the income earned is tax-deferred and
qualified withdrawals are tax-exempt. Early withdrawals are tax-free
and penalty free if the money is used to cover qualified expenses such
as purchasing a first home or if the taxpayer becomes disabled or dies.
To invest the maximum amount in a Roth IRA, your AGI must be less than
$101,000 ($159,000 if married filing jointly). There is a reduced
contribution allowed if your AGI is between $101,000 to $116,000
($159,000 to $169,000 if married filing jointly).
"Before
you spend money on holiday gifts or winter vacations, consider either
giving yourself or a loved one the gift of a contribution to a
retirement savings plan this year and potentially reduce your taxes,"
said Steber. "Even if you contribute as little as $250 to a 401(k) plan
or an IRA, you're taking advantage of tax savings for 2008 and laying
the foundation for a solid retirement plan. If you already contribute,
consult a tax professional to ensure you're receiving the maximum tax
benefit for 2008."
For
more information on the tax benefits of retirement accounts as well as
a list of the most commonly overlooked deductions, credits and updates
on recent tax changes, visit www.jacksonhewitt.com.
About Jackson Hewitt Tax Service Inc.
Jackson
Hewitt Tax Service Inc. (NYSE: JTX), with approximately 6,800
franchised and company-owned offices throughout the United States
during the 2008 tax season, is an industry leader providing full
service individual federal and state income tax return preparation.
Most offices are independently owned and operated. The Company is based
in Parsippany, New Jersey. More information may be obtained at
www.jacksonhewitt.com. To locate the Jackson Hewitt Tax Service(R)
office nearest to you, call 1-800-234-1040.
SOURCE Jackson Hewitt Tax Service Inc.
CONTACT: Kristen Sharkey, Ketchum (Public Relations), +1-646-935-3959, Kristen.sharkey@ketchum.com