What the New IRAs Mean for You

They cover more people, shelter more money from taxes , and have more goals

Congress and the White House have made significant changes in Individual Retirement Accounts (IRAs), and they probably put something in there for you.

But... these changes also made IRAs more complicated - with new types of accounts, different tax advantages, new formulas for eligibility, and new goals.

The traditional IRA had one goal: helping people save for retirement.

That goal still holds, and the new law means more people can participate in it. But that goal has some company. IRAs now help parents pay their children's college tuition. They can also help you buy a first home.

If you plan well, you now have more opportunities to shelter your earnings from federal taxes, even if you've been locked out of making contributions to an IRA because you're covered by a company retirement plan.

Beginning next year, you can make a tax-deductible IRA contribution - up to $2,000 annually - even if you participate in a company sponsored retirement program, such as a 401(k). With one catch: Couples must earn less $60,000 together, individuals less than $40,000.

Even if your income is higher, though, Washington slipped in another goodie.

The Roth IRA, initially dubbed the IRA Plus, allows those who don't qualify for traditional IRAs to avoid all federal tax on IRA earnings as long as the money is used for retirement or other qualifying purposes. And your $2,000 maximum, annual contribution, while not tax deductible, can be made even if you earn as much as $160,000 as a couple or $110,000 on an individual tax return.

The basics of a Roth IRA work like this:

* The money must stay in the account at least five years to stay tax-free.

* You can withdraw the money after age 59-1/2. At that point, though, it gets taxed at your ordinary tax rate, which, in theory, should be lower than it is now.

* You can withdraw the money for education or to buy a first home.

One additional sweetener: Unlike the standard IRA, you need not start taking the money out at age 70-1/2. It can sit there, tax-free, as long as you want.

You can also roll money out of a standard IRA into a Roth, but you have to pay taxes on it (the contribution amounts, not the earnings). However, you can spread the payment over four years.

The constant for IRAs remains the maximum, annual contribution: $2,000, with one exception. The new education, or Child IRA, lets parents save more and get a tax break on college education.

Here's how the education IRA works.

Parents can open one for a child under 18, starting in 1998, and contribute up to $500 a year. Earnings accumulate tax free.

They'll stay tax-free when used for education prior to age 30, and if that child decides against college, the money can cover tuition for another offspring.

A contribution of $500 a year - $42 a month - for 18 years works out to $9,000, not including investment return.

However, if your household income adds up to more than $160,000 on a joint return or $110,000 on a single return, the program phases out.

With the slew of changes coming your way, banks, brokerage firms, and insurance companies will beat a path to your door, and phone, IRA account forms in hand.

Evaluate their offerings based on how much time you have to save, your tolerance for risk and for fees.

Watch the fees. They include annual administrative fees, setup fees, and termination fees if you switch to a competitor. And they vary in size, so read the fine print.

Even with the increased options for IRA retirement savings, remember that the best retirement vehicle remains your employer's 401(k).

If you've got one, keep it. And keep contributing the maximum amount that brings a matching, employer contribution.

Here's a quick description of the new IRA landscape.

Standard IRAs

* Annual contribution: $2,000 maximum, tax deductible.

* Earnings: Tax free.

* Eligibility: Incomes less than $40,000 singly, $60,000 jointly, even with employer retirement plan.

* Distribution: Mandatory at age 70 1/2.

Roth IRA (IRA Plus)

* Annual contribution: $2,000 maximum, not tax deductible.

* Earnings: Tax free.

* Eligibility: Incomes less than $110,000 singly, $160,000 jointly.

* Uses: Retirement, college education, first home - but only after five years.

* Distribution: No mandatory age.

* Added bonus: Money can be transferred from a standard IRA. It gets taxed, with payments over four years.

Child (education) IRA

* Annual contribution: $500 maximum, not tax deductible.

* Earnings: Tax free.

* Eligibility: For children under age 18. For parents with incomes less than $110,000 singly, $160,000 jointly. OK with employer retirement plan.

* Distribution: Mandatory by age 30, but can be transferred to another child.

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