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Current TopicsThe Jobs and Growth Tax Relief Reconciliation Act was designed to encourage new investment and to create jobs. To achieve those goals, the Act lowered the tax rates on capital gains and dividends, increased the Section 179 deduction, and reduced the marginal tax rates for individuals. Please be sure check back with us for frequent updates. Individuals:
Businesses:
Tips to Take Advantage of the Tax Relief Act During 2007
Are You Ready For The Roth 401(K) Option?In 2001, Congress enacted IRC 402A, which permits employers to offer employees the option of treating elective deferrals to 401(k) and 403(b) plans as designated Roth contributions. The sunset requirements of the 2001 law force all provisions to expire after 2010 unless specifically extended by Congress, so this opportunity may not be available for long. The Code will allow employees to fund their retirement by means of payroll deductions through contributions to a 401(k) or 403 (b) plan, just as before. However, if the employer so elects, employees may have the option of designating whether they want contributions to be excluded from their gross income and pay taxes on distributions as before – or, ready for this, pay taxes now and be able to receive tax- free distributions, just as they would with a Roth IRA. Most of the rules for the new Roth 401(k) and 403(b) accounts will be the same as their traditional counterparts. The new accounts will still require employer participation, so any employee whose company does not offer the option can’t contribute. There are limits on the amount an employee may contribute: for 2007 that amount is $15,000 and will be adjusted for inflation in succeeding years. Distributions become mandatory once the participant reaches age 70 ½. Will You Benefit?How will you know whether a Roth plan is right for you? The first general rule is the younger the worker, the greater the benefit from using a Roth account. If you are more than 15 years from retirement, then a Roth plan should definitely be considered. Time frame is an important consideration, even if you are planning on an early retirement. So the important question is not so much how far you are from retirement, but how long until you need the distributions. Regardless of age, anyone already contributing to a Roth IRA should participate in designated Roth contributions, particularly if Roth IRA contributions are maxed out already. Remember that designated Roth contributions might not be retained after 2010 so the window for contributions may close quickly. |
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Matthew R. Horowitz, C.P.A. (410) 312-7622 |
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