Retirement Plan Limits and Restrictions
by Cathy Pareto, MBA, CFP®, AIF®
2007 Retirement Plan Limits
*The maximum amount that can be contributed to a simplified employee pension (SEP) plan is 25% of an employee’s compensation, which is capped at a maximum compensation of $225,000 for 2007.
2008 Retirement Plan Limits
*The maximum amount that can be contributed to a simplified employee pension (SEP) plan is 25% of an employee’s compensation, which is capped at a maximum compensation of $230,000 for 2008.
Roth IRA Contributions
You can contribute to a Roth IRA if your adjusted gross income falls below the Roth limits. If you qualify to participate the same IRA limit applies. You’re allowed a prorated contribution if your income falls within the “phase-out” range. If your income exceeds the income range you won’t qualify for a Roth IRA contribution. Just as a note, you can only contribute the limit amount into either one type of IRA or you can choose to split the amount into both accounts.
A nonworking spouse can make a deductible IRA contribution of up to $5,000 for 2008 ($6,000 if age 50 or older as of 12/31/08) as long as the couple is married and files a joint tax return. To qualify the working spouse must also have enough earned income to cover the contribution. However, the deductibility of the nonworking spouse’s contribution is phased out for couples with adjusted gross income (AGI) between $159,000 and $169,000, provided that the working spouse is covered by a qualified retirement plan. The working spouse’s ability to make a deductible contribution for 2008
is phased out starting at AGI of $85,000.
Similarly, when both spouses work but neither participates in a qualified retirement plan, both can make deductible IRA contributions of up to $5,000 in 2008 — for a total of $10,000 — regardless of the couple’s AGI level. The only limitation is that they must have at least $10,000 of earned income between them. If the individuals are over 50 years of age the higher contribution limit applies.
by Cathy Pareto, MBA, CFP®, AIF® Contact Author