3. IRAs and Other Retirement Plans
2007 Changes
Catch-up Contributions in Certain Employer Bankruptcies
If you participated in a 401(k) plan and the employer who maintained the plan went into bankruptcy, you may be able to contribute an additional $3,000 to your IRA. For this to apply, the following conditions must be met.
You must have been a participant in a 401(k) plan under which the employer matched at least 50% of your contributions to the plan with stock of the company.
You must have been a participant in the 401(k) plan 6 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 choose to make these additional contributions, you cannot use the higher contribution and deduction limits for individuals who are age 50 or older.
Income Exclusion for Retired Public Safety Officers
For distributions beginning in 2007, you can elect to exclude from income distributions from an eligible retirement plan that is a governmental plan if you are an eligible retired public safety officer. The distribution must be transferred directly to an insurance provider to pay premiums for accident or health insurance or qualified long-term care insurance for you, your spouse, or your dependents.
The maximum annual exclusion is $3,000. You cannot deduct these premiums as medical expenses or, if you are self-employed, health insurance costs. For more information, see Insurance Premiums for Public Safety Officers in Publication 575, Pension and Annuity Income.
Modified AGI Limit for Traditional IRA Contributions Increased
For 2007, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:
More than $83,000 but less than $103,000 for a married couple filing a joint return or a qualifying widow(er),
More than $52,000 but less than $62,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.
If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your AGI is more than $156,000 but less than $166,000. If your AGI is $166,000 or more, you cannot take a deduction for contributions to a traditional IRA.
Rollover by Nonspouse Beneficiary
Beginning in 2007, you may be able to roll over tax free all or a portion of a distribution you receive from an eligible retirement plan of a deceased employee if you are a designated beneficiary of the employee (other than a surviving spouse). The distribution must be a direct trustee-to-trustee transfer to your IRA that was set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the receiving plan will be treated as an inherited IRA. For information on rollovers, see Publication 575. For information on inherited IRAs, see Publication 590, Individual Retirement Arrangements (IRAs).
Modified AGI Limit for Retirement Savings Credit Contributions Increased
For 2007, you may be able to claim the retirement savings contributions credit if your modified AGI is not more than:
$52,000 if your filing status is married filing jointly,
$39,000 if your filing status is head of household, or
$26,000 if your filing status is single, married filing separately, or qualifying widow(er).
Rollover of Nontaxable Amounts
For tax years beginning in 2007, the nontaxable part of an eligible rollover distribution (such as after-tax contributions) from a qualified retirement plan can be rolled over to another qualified retirement plan that is either a qualified employee plan or an annuity contract described in section 403(b). Previously, this part of the distribution could be rolled over only to another qualified retirement plan that was a defined contribution plan.
The rollover must be a direct trustee-to-trustee transfer. The plan to which the rollover is made must separately account for these contributions and the earnings on them. For information on rollovers, see Publication 575.
Modified AGI Limit for Roth IRA Contributions Increased
For 2007, your Roth IRA contribution limit is reduced (phased out) in the following situations.
Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $156,000. You cannot make a Roth IRA contribution if your modified AGI is $166,000 or more.
Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2007 and your modified AGI is at least $99,000. You cannot make a Roth IRA contribution if your modified AGI is $114,000 or more.
Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a IRA contribution if your modified AGI is $10,000 or more.
Qualified Plans
The following changes apply to qualified plans. For more information, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).
Limits on contributions and benefits.
For 2007, the maximum annual benefit for a participant under a defined benefit plan has increased to the smaller of:$180,000, or
100% of the participant's average compensation for his or her highest 3 consecutive calendar years.
$45,000, or
100% of the compensation actually paid to the participant.
Compensation limit.
For 2007, the maximum compensation used for figuring contributions and benefits has increased to $225,000.Elective deferrals (401(k) plans).
For 2007, the limit on elective deferrals (excluding catch-up contributions) for participants in 401(k) plans and SARSEPs (excluding SIMPLE plans) increased to $15,500.Simplified Employee Pensions (SEPs)
The following changes apply to SEPs. For more information, see Publication 560.
Elective deferrals (SARSEPs) limit.
The limits on elective deferrals for participants in SARSEPs are discussed earlier under Elective deferrals (401(k) plans).Deduction limit increased.
The maximum deduction for contributions to a SEP remains unchanged at 25% of the compensation paid or accrued during the year to your eligible employees participating in the plan. However, for 2007, the maximum combined deduction for a participant's elective deferrals and other SEP contributions has increased to $45,000.Contribution limit increased.
For 2007, the annual limit on the amount of employer contributions to a SEP has increased to the smaller of:$45,000, or
25% of an eligible employee's compensation.
Compensation limit.
For 2007, the maximum amount of an employee's compensation you can consider when figuring SEP contributions (including elective deferrals) and the deduction for contributions has increased to $225,000.SIMPLE Plans
The following change applies to SIMPLE plans. For more information, see Publication 560.
Salary reduction contributions.
For 2007, the limit on salary reduction contributions (excluding catch-up contributions) to a SIMPLE plan increased to $10,500.403(b) Plans
The following changes apply to 403(b) plans. For more information, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans).
Increase in the limit on elective deferrals.
For 2007, the limit on elective deferrals (excluding catch-up contributions) has increased to $15,500.Limit on annual additions.
For 2007, the limit on annual additions has increased to $45,000.2008 Changes
Traditional IRA Contribution and Deduction Limit
The contribution limit to your traditional IRA for 2008 will be increased to the smaller of the following amounts:
$5,000, or
Your taxable compensation for the year.
If you were age 50 or older before 2009, the most that can be contributed to your traditional IRA for 2008 will be the smaller of the following amounts:
$6,000, or
Your taxable compensation for the year.
Modified AGI Limit for Traditional IRA Contributions Increased
For 2008, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:
More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),
More than $53,000 but less than $63,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.
If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA.
Modified AGI Limit for Retirement Savings Contributions Credit Increased
For 2008, you may be able to claim the retirement savings contributions credit if your modified AGI is not more than:
$53,000 if your filing status is married filing jointly,
$39,750 if your filing status is head of household, or
$26,500 if your filing status is single, married filing separately, or qualifying widow(er).
Roth Contribution Limit
If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:
$5,000, or
Your taxable compensation for the year.
If you were age 50 or older before 2009 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:
$6,000, or
Your taxable compensation for the year.
However, if your modified AGI is above a certain amount, your contribution limit may be reduced.
Modified AGI Limit for Roth IRA Contributions Increased
For 2008, your Roth IRA contribution limit is reduced (phased out) in the following situations.
Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $159,000. You cannot make a Roth IRA contribution if your modified AGI is $169,000 or more.
Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2008 and your modified AGI is at least $101,000. You cannot make a Roth IRA contribution if your modified AGI is $116,000 or more.
Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.
Qualified Plans
The following changes apply to qualified plans. For more information, see Publication 560.
Limits on contributions and benefits.
For 2008, the maximum annual benefit for a participant under a defined benefit plan has increased to the smaller of:$185,000, or
100% of the participant's average compensation for his or her highest 3 consecutive calendar years.
$46,000, or
100% of the compensation actually paid to the participant.
Compensation limit.
For 2008, the maximum compensation used for figuring contributions and benefits has increased to $230,000.Simplified Employee Pensions (SEPs)
The following changes apply to SEPs. For more information, see Publication 560.
Deduction limit increased.
The maximum deduction for contributions to a SEP remains unchanged at 25% of the compensation paid or accrued during the year to your eligible employees participating in the plan. However, for 2008, the maximum combined deduction for a participant's elective deferrals and other SEP contributions has increased to $46,000.Contribution limit increased.
For 2008, the annual limit on the amount of employer contributions to a SEP has increased to the smaller of:$46,000, or
25% of an eligible employee's compensation.
Compensation limit.
For 2008, the maximum amount of an employee's compensation you can consider when figuring SEP contributions (including elective deferrals) and the deduction for contributions has increased to $230,000.403(b) Plans
The following change applies to 403(b) plans. For more information, see Publication 571.
Limit on annual additions.
For 2008, the limit on annual additions has increased to $46,000.Rollovers From Other Retirement Plans to Roth IRAs
Prior to 2008, you could only rollover (convert) amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. After 2007, you can rollover amounts from the following plans into a Roth IRA.
A qualified pension, profit-sharing or stock bonus plan (including a 401(k) plan),
An annuity plan,
A tax-sheltered annuity plan (section 403(b) plan),
A deferred compensation plan of a state or local government (section 457 plan), or
An IRA.
Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. See Converting From Any Traditional IRA Into a Roth IRA in chapter 1 of Publication 590. Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan.
Expired Tax Benefits
The following provisions do not apply for 2008.
Qualified charitable distributions.
Qualified reservist distributions.
