The media is going around comparing president-elect Barack Obama to Abraham Lincoln. Hey, like most Americans, I’m rooting for Obama to succeed, but let’s not get hysterical.
After all, it was Lincoln who saved the Union, freed the slaves, and passed along one of the wisest pieces of investment advice I’ve ever heard. “Prosperity is the fruit of labor,” he said. “It begins with saving money.”
That’s a home run in my book. If you work hard, plan ahead, do your homework, and save money, then retirement isn’t such a stove-pipe dream, even in an economy that looks like General Sherman just marched through it.
One place to start is with your retirement savings, specifically your IRA. I’ve come up with a list of moves that IRA investors can make that will save taxes, save money, and give you some good cash-out options after a rough 2008.
Let’s take a look:
The clock is ticking – Technically, this isn’t a money-saver unless you blow the deadline. But know that IRAs and 401(k) plans have different contribution deadlines per the IRS. For your 401(k), your contribution deadline for 2008 is December 31. For IRA investors, you get more time – your contribution deadline is tax day, April 15, 2009. That means you can open a new account or contribute to an old one, just do it by April 15. For 2008, the maximum contribution you can make is $5,000, or $6,000 if you are over 50 years-old.Different rules for on IRA minimum contributions – IRS rules in the past state that IRA investors must take required minimum distributions, or RMD’s, each year after turning 70 and-one-half years-old. If you don’t, then Uncle Sam slaps you with a big excise tax. But 2009 should offer you some relief. Under HR 7327, the Worker, Retiree and Employer Recovery Act, the RMD is suspended for 2009. That’s a big advantage considering so many IRA investors lost money in their accounts in 2008. It’s arcane stuff but the RMD money adds up - IRA distribution calculations are based on myriad benchmarks and actuarial tables. In one example, a 76-year-old man with a $200,000 IRA balance in 2007 must, by law, withdraw at least $9,091 by the end of the year, based on a 22-year life expectancy. Now that mandate is off the table, at least for 2009 (2008 RMD rules still apply).