IRA contribution time

Yes, I know I preach about contributing to retirement accounts as much as you're allowed and as early as you can.

But I must admit that last year, the hubby and I didn't max out our IRAs. OK, I didn't max them out since that's one of my jobs.

My excuse is day-to-day living costs. You know how it goes. A bigger than expected bill here, an extra charge there.

And then there was the new A/C unit we had to get, blogged here. Believe me, when you have weeks of triple-digit temps in the summer, you HAVE TO GET another air conditioner if yours conks out! But it definitely ate up a big chunk of our disposable income. (At least it's more energy efficient, so we'll get to claim a tax credit for it this filing season, but that's another blog item.)

After that expense, to be quite honest, I forgot about our retirement accounts. I was focused instead on rebuilding our emergency fund.

Over the weekend, though, comes word from the mutual fund company that handles our IRAs that it wants our cash. OK, the company says it is looking out for our financial interests by alerting us to our available 2007 IRA contribution options, but we know that it basically just wants our money in the accounts it manages and it wants it now.

I agree. We need to get the money in there ASAP so it can start earning. So as soon as the credit card bills arrive with the Christmas charges, which should be this week, I'll sit down and see about maxing out our IRAs.

IRA options: If you're in the same retirement account situation as the hubby and I, the ol' blog's first Tax Tip of 2008 looks at some important IRA tax considerations.

First, as everyone already knows, you've (we've) got until April 15 to contribute to an IRA and have it count toward the last tax year.

And, as everyone also already knows, for 2007 you can put in up to $4,000 or $5,000 if you celebrated your 50th or older birthday last year. For 2008 planning purposes, just in case you're ready to contribute for this year, the amounts increase to $5,000 or $6,000 if you celebrate the big five-oh this year.

If you find a traditional IRA is best for you, even if you were covered by a retirement plan, you may be able to deduct your contributions if your 2007 modified adjusted gross income was less than $62,000 ($103,000 for married filing jointly or qualifying widow/er taxpayers).

Roth IRA account holders can add to those plans if their modified adjusted gross income last year was less than $114,000 ($166,000 for MFJ or widow/er).

Military personnel also get some IRA help. Under the Heroes Earned Retirement Opportunities (HERO) Act, members of the armed forces serving in Iraq, Afghanistan and other designated combat zones can count their tax-free combat pay as earned income when figuring their traditional and Roth IRA contribution amounts. Before this law was enacted in May 2006, servicemen and women could not contribute to either types of IRAs when their earnings were totally tax-free combat pay.

Enron IRA catch-up provision: Finally, the 2007 tax year brings us one of my favorite new retirement plan provisions: the scuzzy employer tax break.

OK, not all corporate monkeys in suits are trying to steal from their workers, but this provision was created specifically in the wake of high-profile corporate executive malfeasance that wiped out employee retirement funds. In fact, it's sometimes referred to as the Enron IRA catch-up provision.

Under this law, if you participated in a 401(k) plan and your employer went into bankruptcy in a prior year, you may be able to contribute up to $7,000 (instead of the general $4,000/$5,000 limits) to your IRA.

The key, though, is that a criminal indictment or conviction comes in connection with the bankruptcy, hence the Enron nickname.

All the official conditions that must be met in order to make this larger contribution are:

• You must have been a participant in a 401(k) plan under which the employer matched at least 50 percent of your contributions to the plan with stock of the company.
• You must have been a participant in the 401(k) plan six months before the employer filed for bankruptcy.
• The employer (or a controlling corporation) must have been a debtor in a bankruptcy case in an earlier year.
• The employer (or any other person) must have been subject to indictment or conviction based on business transactions related to the bankruptcy.

If you are eligible for and use the Enron IRA option, you can't also use the 50-or-older add-on; that is, you can't put an extra $1,000 into your account on top of this.

The bankruptcy catch-up option was part of the Pension Protection Act of 2006 and will continue through 2009.

You can find more on all these IRA provisions in IRS Publication 590.