A Last Chance and First Chance for IRAs

By , Staff writer of The Christian Science Monitor

Here's one sure-fire way to lower your tax bill for 1996.

Slap some money into an individual retirement account (IRA).

If you qualify, you won't pay taxes until you start withdrawing the money, most likely during retirement. By then, your IRA nest egg will be bigger and your tax bracket could well be lower.

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But hurry. Today is the tax filing deadline, and the deadline to deduct an IRA investment from 1996 taxable income, even if you receive an extension for filing your return.

You can even borrow money for an IRA and still take the deduction. Generally, the maximum contribution for '96 is $2,000 for an individual, $2,250 for a couple.

If you miss the deadline, don't despair. There's another IRA goody available until April 15, 1998.

For 1997, the limits get bigger: up to $2,000 for each spouse.

One popular type of IRA, self-directed, offers the most options - mutual funds, stocks, bonds, and more.

For the full $2,000 deduction, your adjusted gross income must not exceed $40,000 for a joint tax return or $25,000 for an individual return. Above those levels, you lose $10 of deductibility for each $50 in income.

Also, you lose the deduction if either spouse is active in a company plan such as a 401(k).

If you have a company plan, you can still put in $2,000, but it's nondeductible. Taxes get tricky later on if your IRA is a pre-tax/after-tax mix.

For more information , check out "J.K. Lasser's Your Income Tax 1997" (Simon & Schuster). It's cheap, $14.95, easy to read and thorough.

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