Changes possible in some basic rules

The choices for your individual retirement account keep getting wider as new mutual funds are introduced, as banks show off new savings vehicles, and as brokers find new ways to package things like government-backed securities. But the basic rules of the IRA game are still the same, although some of the rules may be changed if a tax-reform package is passed this year.

Anyone who is under age 70 and has income from a job or receives alimony can open an IRA. The income can come from an employer or from self-employment income, though self-employed people can also open a Keogh account, where they can save more each year.

You can contribute up to $2,000 a year to an IRA and deduct the contribution from your taxable income, no matter what form you file: the 1040, the shorter 1040A, or the simplest 1040EZ. The $2,000 figure is a top limit; some banks will let you start an IRA with as little as $25.

You have only until April 15 to make IRA contributions that count against your 1985 return, even if you receive an extension of the filing date.

If your spouse doesn't work, you can put in as much as $2,250. If you both work, you can each put in $2,000. The House-passed version of tax reform would raise the $2,250 limit to $2,000 for both, even if one doesn't work.

You can't put your IRA anywhere you like, but almost. The account has to be placed with a trustee that has been approved and registered with the Internal Revenue Service. This includes banks, savings-and-loans, mutual funds, brokerages, and insurance companies.

As long as your total annual contributions don't go over $2,000, you can have as many IRAs and sponsors as you like. With many IRA balances going well over $10,000, some people are spreading their money among sponsors to reduce the risk. At this point, though, having more than two or three sponsors probably isn't very efficient.

Even if you are participating in an employer-spon-sored 401(k) or 403(b) retirement program, you can still make the maximum IRA contribution. Many people like this because they want more investment choices than they get through their company. But this is another change Congress is considering. The House bill would reduce your IRA eligibility by one dollar for every dollar you put in an employer-sponsored plan. So if you put $2,000 in a 401(k) or 403(b), you couldn't have an IRA.

Currently, the penalty for withdrawing any of your IRA balance before age 59 is 10 percent of the money taken out, plus you have to pay taxes on it as ordinary income in the year it's received. But because so many people have figured out that it doesn't take too many years of tax-free interest to overcome the penalties, Congress is considering a change here, too. In the House-pased bill, the penalty would be raised to 20 percent.

Not only can't you make any IRA contributions after age 70, but you also have to start making withdrawals by April 1 following the year you reach that age.

If you are about to receive a big lump-sum pension or profit-sharing distribution payment from your employer, you can either take it and use 10-year forward averaging to reduce the tax bite, or roll it over into an IRA. The IRA rules permit this rollover, even if the distribution exceeds $2,000.

However, you have to meet some other standards to qualify for the IRA rollover:

-- You must have participated in the company plan for at least five years.

-- You have to take the whole distribution in a single tax year.

-- You have to either be: 59 years old, have quit working for the firm, be permanently disabled, or be a beneficiary of a participant in the pension or profit-sharing plan. -- T. W.

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