“Plans are only good intentions unless they immediately degenerate into hard work.” — Peter Drucker, American management author. (1909 - 2005)

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Over two-thirds of Americans have no plan for generating retirement income. One way to prepare is to fund an Individual Retirement Account (IRA). IRAs originated in 1974 when the Employee Retirement Income Security Act (ERISA) was enacted – 1983 was my first year in the financial services business and on April 15 our office was open until 9 p.m. to accommodate the flurry of people who needed to open and/or contribute to their IRAs. Today IRAs are relatively commonplace but often underutilized.

Mark Twain stated that “The rumors of my death have been greatly exaggerated.” Like Mr. Twain’s rumored demise, the idea that an IRA is no longer a useful part of a financial plan has been greatly exaggerated.

Last week my husband met with our CPA to hand over the proverbial cardboard box full of the 2007 tax information which includes our retirement account information. I’m covered by my employers 401(k) plan and contribute to an IRA and my husband who’s an independent contractor funds his SEP/IRA. We try to make these contributions as early in the year as possible although the deadline isn’t until April 15, 2008, for our 2007 tax return. Even though my IRA contribution isn’t deductible, it’s still an important financial and retirement planning tool.

To make a traditional IRA contribution all you need are earnings as an employee or as a self-employed person. The amount you can contribute for 2008 is the lesser of $5,000 ($6,000 if you have attained age 50) or your earnings from your work. There is no minimum age for making a traditional IRA contribution for tax purposes. If a 16 year old works for the summer, makes $5,000 and blows it all at the mall, the tax code permits mom, dad or whomever to give him/her $5,000 to contribute to a traditional IRA on his behalf. There is a maximum age for IRA contributions. No traditional IRA contributions may be made for people over 70.5, even if they’re still working as hard as they were at 30.5.

An additional contribution of $5,000 is permitted if the traditional IRA participant has a spouse who doesn’t work outside the home. If both spouses are under age 50, the total contribution in this situation is $10,000 and the spouses can divide the amount contributed up any way they choose, so long as neither receives more than $5,000 into his/her account.

If the IRS permits tax-deferred savings, so why not take advantage of it? The average millionaire in the U.S. saves 20 percent of his or her realized household income according to the Employee Benefit Research Institute’s 2005 Conference Survey “Encouraging Workers to Save.” Even if you aren’t in that league and are unable to fund the full amount, at least get started today with whatever amount you can set aside.

Picture your retirement as the longest vacation you’ll ever take. It’s rare that you’d leave for a vacation without a plan. I at least like to know how I’ll be traveling and where I’ll be staying, and have an idea what I would like to do with my time. Put at least as much effort into planning your retirement as you’d invest in planning for your next vacation.

The deductibility question can be confusing to many taxpayers. There are two questions that need to be answered to determine if a traditional IRA contribution is fully deductible, partially deductible or not deductible at all.

1. “Are you covered by a plan?”

If the answer is “no,” then the traditional IRA contribution is deductible regardless of the taxpayer’s income. Whether or not you are covered by a plan depends on the type of employer-sponsored plan in place. If you’re not sure, your employer can tell you. Employers must check a box on every employee’s W-2 stating whether they’re covered. If the answer is “yes” and you’re covered by a plan but your spouse isn’t, then only you are exposed to the next test. Your spouse’s contribution to a traditional IRA is fully deductible up to new phase-out limits of $159,000 to $169,000 of joint income. If both of you are covered by a plan then the next test will determine to what extent both of you can deduct your contributions.

2. “How much is your income?” assuming coverage by a plan, this is the next question that must be answered.

For 2008, taxpayers with adjusted gross income (AGI) of $58,000/85,000 (single/married filing jointly) or less, the contribution is fully deductible. For taxpayers with AGI over $63,000/$105,000 (single/married filing jointly), no IRA deduction is permitted. For those with an AGI between those levels, the amount of the deduction is phased out proportionately. There is a $400 floor to the deduction that will apply to those whose AGI is close to the upper limit.

For example, a single person who’s covered by an employer’s plan has an AGI (excluding the IRA deduction) of $58,000. Since that’s 50 percent of the way from $53,000 to $63,000, the taxpayer may deduct $2,500 of a $5,000 contribution ($5,000/50 percent). The other $2,500 of the contribution is non-deductible.

Most obstacles that we as investors must overcome are emotional. Markets fall and people often panic; they grow fearful. Markets soar upward and people tend to become exuberant. It’s said that people don’t plan to fail, they fail to plan. Don’t let that happen to you. Look for a financial advisor who will help guide you, coach you and act as a mentor to help manage emotions and investments along this important journey.

Your financial advisor can show you whether and how a traditional IRA can fit into your retirement plan. Have you made your contribution for 2007 and 2008?

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This article is provided by Darcie Guerin, Financial Advisor & Branch Manager, Raymond James & Associates, Inc. located at 606 Bald Eagle Drive, Suite 401, Marco Island, 34145. If you have questions please contact Darcie Guerin via Email at Darcie.Guerin@RaymondJames.com. Phone (239)389-1041, toll free (866)-343-0882 or at www.RaymondJames.com/Darcie.