8. How much can I set aside toward my retirement each year?

If you have a plan available through your employment, you should check with your employer to find out how much of your salary you can set aside on a pretax basis toward your retirement. There are many different types of retirement plans that can be offered by employers, with varying limits on the amount you can set aside from your wages. In many plans your employer will match a portion of the amount you set aside toward your retirement. In addition to retirement contributions you make through your job, you may be able to put money to an IRA.

For the tax year 2008, a taxpayer who was covered by an employer retirement plan could also deduct up to $5,000 of additional money contributed to an individual retirement account (IRA), unless the income of a single taxpayer exceeds $53,000 or $85,000 in the case of a married couple. If your income exceeds these amounts, the amount of deductible contributions decreases. If total income exceeds $63,000 for a single taxpayer or $105,000 for a married couple, no deduction is allowed for an IRA contribution if you are covered under your employer’s plan.

If you have no employer retirement plan coverage available, either because your employer does not offer a retirement plan, or because you are not currently employed, you may make a deductible contribution of up to $5,000, assuming either you, or your spouse on a joint return, has at least $5,000 of total earned income. When you retire and become eligible to withdraw the funds from your IRA you will be taxed on the money as you take withdrawals.

Another option to set aside money toward your retirement is the Roth IRA. You can contribute up to $5,000 per year. Even if you have an employer sponsored retirement plan, you can still contribute up to $5,000 to a Roth IRA, as long as your income does not exceed $101,000 for a single taxpayer, or $159,000 for married taxpayers. Contributions to a Roth IRA are not tax deductible. However, when you withdraw the funds from the Roth IRA upon retirement, non of the withdrawal is taxable. Therefore, the earnings on the Roth IRA are tax-free.

The maximum that any taxpayer can contribute to any IRA in one tax year is $5,000, wither it is to a deductible IRA, or a Roth IRA Taxpayers over the age of 50 can contribute an additional $1,000 per year to their IRA, making their maximum annual contribution $6,000 for tax year 2008. 

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