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Why the Best Time to Contribute to Your Retirement Account Might Be Now.

Jackson Hewitt Helps Taxpayers Understand the Benefits of Additional Year-End Contributions to Retirement Savings

PARSIPPANY, N.J., Nov. 12 /PRNewswire-FirstCall/ -- With the stock market showing unprecedented losses over the past month, many Americans are seeing their once healthy retirement savings dwindle. However, now might be the best time to contribute to your 401(k), SEP or Roth and Traditional IRAs.

"This year, more than ever, taxpayers will be looking to get the most out of their tax refund," said Mark Steber, vice president of tax resources, Jackson Hewitt Tax Service(R). "One of the easiest ways to increase your tax refund or reduce your balance due is to contribute to an individual or employer-sponsored retirement plan. Even a few hundred dollars contributed between now and the end of the year can positively impact your tax return."

The three most popular retirement savings plans have pre- and post- retirement tax benefits. Employer-sponsored retirement plans, plans for self-employed persons and individual retirement accounts all allow taxpayers to lower their tax liability or realize tax savings in some way.

Employer-Sponsored Retirement Plans

Company-sponsored accounts such as 401(k) or 403(b) plans allow employees to reduce the amount of their taxable income through payroll deductions. As these accounts grow, the earnings and contributions are tax-deferred. Withdrawals are subject to taxes but only the amount withdrawn is taxed. The remainder of the money stays in the account and the earnings continue to be tax-deferred. You can save on taxes now by contributing even a small amount of money, thereby lowering your overall taxable income and your total tax liability to the government. Note that for 2008, the maximum that can be contributed is $15,500 (workers over 50 may contribute up to an additional $5000 in catch-up contributions). Some companies match a percentage of the employee's contribution, effectively increasing the investment.

Self-Employed or Small Business Retirement Plans

Simplified Employee Pension Plans (SEP) are available for small business owners to contribute to their individual and their employees' IRAs. The 2008 limit for SEP contributions is $46,000. These contributions are tax deductible for the employer. Traditional IRA rules regarding early withdrawal and taxable income after age 59.5 are applicable.

Individual Retirement Accounts

Traditional and Roth IRAs are also popular retirement savings vehicles with tax-deferred savings growth. Many banks and investment firms offer such accounts and allow investors to apply for and open traditional and Roth IRAs online. An IRA can be funded until April 15 and will still qualify for tax benefits for the prior tax year. The maximum contribution for 2008 to an IRA is $5,000 ($6,000 for those 50 and above).

Traditional IRA contributions may be fully tax-deductible if a taxpayer has earned income and is not covered by an employer retirement plan. If the taxpayer is covered by an employer retirement plan and has an adjusted gross income (AGI) of less than $53,000 ($85,000 if married filing jointly), the IRA contribution may be fully deductible. If the taxpayer is covered by an employer provided plan and their AGI is between $53,000 and $63,000 ($85,000 and $105,000 if married filing jointly), the deduction is phased-out. No deduction is allowed for taxpayers who are covered by an employer plan if their AGI exceeds $63,000 ($105,000 if married filing jointly). You will be assessed a 10% additional tax if you withdraw funds before you reach age 59.5. Any withdrawals after that age are not subject to the additional 10% tax. You may not have to pay the additional tax if the money is withdrawn for certain reasons such as funds (up to $10,000) to buy a first home and higher education expenses for yourself, spouse, or dependent.

Roth IRAs are not tax-deductible but the income earned is tax-deferred and qualified withdrawals are tax-exempt. Early withdrawals are tax-free and penalty free if the money is used to cover qualified expenses such as purchasing a first home or if the taxpayer becomes disabled or dies. To invest the maximum amount in a Roth IRA, your AGI must be less than $101,000 ($159,000 if married filing jointly). There is a reduced contribution allowed if your AGI is between $101,000 to $116,000 ($159,000 to $169,000 if married filing jointly).

"Before you spend money on holiday gifts or winter vacations, consider either giving yourself or a loved one the gift of a contribution to a retirement savings plan this year and potentially reduce your taxes," said Steber. "Even if you contribute as little as $250 to a 401(k) plan or an IRA, you're taking advantage of tax savings for 2008 and laying the foundation for a solid retirement plan. If you already contribute, consult a tax professional to ensure you're receiving the maximum tax benefit for 2008."

For more information on the tax benefits of retirement accounts as well as a list of the most commonly overlooked deductions, credits and updates on recent tax changes, visit

About Jackson Hewitt Tax Service Inc.

Jackson Hewitt Tax Service Inc. , with approximately 6,800 franchised and company-owned offices throughout the United States during the 2008 tax season, is an industry leader providing full service individual federal and state income tax return preparation. Most offices are independently owned and operated. The Company is based in Parsippany, New Jersey. More information may be obtained at To locate the Jackson Hewitt Tax Service(R) office nearest to you, call 1-800-234-1040.

CONTACT: Kristen Sharkey, Ketchum (Public Relations), +1-646-935-3959,

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Publication:PR Newswire
Date:Nov 12, 2008
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