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2008 YEAR-END PLANNING STARTS NOW!

January 03, 2008

We just finished our 2007 year-end tax planning. Can't we at least wait until, oh, March to start planning?

That's up to you, of course, but isn't it asking a lot of December to correct all of the tax mistakes of the first 11 months? More importantly, a lot of things that people think of as year-end planning ideas actually work best if they are done at the start of the year.

This is especially true of tax-deferred savings vehicles, like Individual Retirement Accounts, Section 529 educational savings accounts, and Health Savings Accounts. These things all provide a tax benefit by accumulating earnings without current tax. If you fund them now, instead of waiting until year-end, you cut the IRS out of its share of your investment earnings twelve months sooner.

So put that cash away starting now. If you want to max out right away, here are the 2008 contribution limits:

IRAs: $5,000 ($6,000 if you reach age 50 by year-end).

HSAs: $5,800 if you have family coverage, or $2,900 for self-only coverage. If you reach age 55 before the end of 2008, you can contribute an additional $900.

Education savings accounts - these don't have an annual limit; they do have some total balance limits. But some states, including Iowa, allow deductions for contributions to their Section 529 plans. The maximum Iowa deduction for 2008 contributions to College Savings Iowa hasn't been released yet, but it will be at least as much as the 2007 limit of $2,595 per donor, per donee. That means two parents with two children can deduct at least $10,380 in CSI contributions for 2008 (UPDATE, 1/5/08: it's $2,685, so our two-child couple can deduct $10,740 this year).

Or you can just wait until year end to fund these. The IRS will be happy to share in your investment income until then.

Tags: HSA.IRA.Section 529.

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