NEW TAX NUMBERS FOR 2009: THINGS TO CONSIDER

A number of figures used in tax and retirement planning have been updated for 2009.  Here are some of the changes affecting pension and IRA contributions.

1. The maximum contribution that can be made to a defined contribution plan in 2009 under Section 415 is the lesser of $49,000 or 100 percent of compensation—up from $46,000 in 2008.
2. The limit on employee elective deferrals to a 401K or 403b plan has increased from $15,500 in 2008 to $16,500 in 2009.  The limit for Section 457 plan salary reductions has likewise been increased to $16,500 for 2009.
3. The maximum elective deferrals for a SIMPLE or 401 K SIMPLE plan is $11,500 in 2009, an increase of $1,000 over the 2008 limit.
4. The limit on IRA contributions remains at $5,000 for 2009.  Those 50 and older can still contribute an extra $1,000 under the special catch-up provision.

Here are a few of the income tax changes:

1. The standard deduction for those who do not itemize has been increased.  For joint filers and surviving spouses, the 2009 standard deduction is $11,400, up $500 from 2008.  For heads of household, the deduction is $8,350, and for unmarried individuals it is $5,700.  The aged and the blind get an additional $1,100 or $1,400 added to their standard deductions, depending on their filing status.
2. The personal exemption has increased from $3,500 in 2008 to $3,650 for 2009.  The exemption begins to be phased out at $250,200 of adjusted gross income for married filers, $208,500 for heads of household, $166,800 for unmarried individuals and $125,100 for married individuals filing separate returns.
3. The phase out of itemized deductions begins at $83,400 of adjusted gross for married individuals filing separate returns, and $166,800 for all other taxpayers.

And here are some other items that may be important to you.

1. The social security tax rate for individuals stays at 7.65% in 2009.  The rate for self-employed individuals also remains constant at 15.3%.  The taxable wage base for the OASDI portion is $106,800 in 2009—and that gets hit with the full 7.65% tax for individuals.  Any additional compensation over that limit is subject to only the Medicare portion of 1.45%.
2. In 2009, the federal annual gift tax exclusion amount has increased from 2008’s $12,000 level to $13,000.  The lifetime gift tax exemption has remained at $1 million.
3. The federal estate tax exemption has risen from $2 million to $3.5 million.  Watch for possible action on federal estate taxes by the new Congress and President.

These changes may affect your own retirement or tax plans.

I hope this information is helpful.

Please contact the Law Offices of William H. Copperthwaite Jr., L.L.C. if you have any questions.

Please note that the information contained in this summary is intended for informational purposes only and is not to be considered tax/legal advice. For specific advice, please contact the Law Offices of William H. Copperthwaite Jr., L.L.C.