Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 18, 1991 TAG: 9103160030
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Medium
It's the point when money can be deposited into accounts that shelter it for two tax years. Contributions for 1990 can be made until April 15, while a full year remains for 1991's deposits.
Although not everyone can deduct their contributions under present rules, IRAs still offer the advantage of tax-deferral on interest and capital gains. IRA earnings thus accumulate faster than an investment that's subject to taxes.
Savers need to consider several factors before opening an IRA account, however. The accounts are designed to hold long-term retirement money because there are severe penalties if money is withdrawn before the saver reaches the age of 59 1/2. That means investors should have another source of more accessible emergency funds before opening an IRA.
Anyone who is not covered by a retirement plan at work can deposit any amount up to $2,000 a year and deduct IRA contribution from income taxes.
If one spouse is not employed, up to $2,250 can be divided between two accounts.
Some people are eligible for a deduction even if they or their spouses are covered by a plan at work.
Those eligible are single taxpayers with adjusted gross income of less than $25,000 or couples with adjusted gross income of less than $40,000.
The size of the deduction phases out for single taxpayers with adjusted gross income between $25,000 and $35,000 and couples with adjusted gross income between $40,000 and $50,000.
Above those income limits, only the earnings on an IRA investment are tax-deferred.
\ Those who decide to invest in IRAs have a wide range of options from bank certificates to self-managed accounts.
Dean Penley, manager of the Roanoke office of J.C. Bradford & Co., said utility stocks are a popular investment this year.
His office, for example, is recommending diversifying into a package of four utilities: Florida Power & Light, Atlantic Energy, Public Service Energy Group and Public Service of Colorado. The portfolio has an average yield of 7.8 percent.
Utilities generally are considered a protected industry with a steady rate of return, he said. Yet the stocks offer the prospect of dividend growth and a hedge against inflation.
Mutual funds are the most common investment at brokerage houses, according to Penley, with a wide variety of funds ranging from speculative growth to very conservative investments.
U.S. Treasury securities are a conservative investment suitable for IRAs, Penley said. They are backed by the full faith and credit of the national government.
He recommends buying Treasuries of various maturities so that one bond matures every six months over a five-year period. That allows the advantage of averaging long-term and short-term rates.
Penley said diversification is as important in an IRA as it is in any other investment.
Richard Wertz, assistant manager of the Roanoke office of A.G. Edwards & Sons, thinks growth mutual funds are the best investment for an IRA because they offer diversification and professional management.
Another good option, he said, is high-quality bonds, for example those issued by Vepco (a unit of Dominion Resources Inc.) and Kroger Co. The latter carries private insurance and a 9 percent yield.
Many people feel most secure in federally insured certificates at banks, thrifts and credit unions. And banks are advertising heavily for IRA deposits at this time of year.
The banks are angling for people willing to transfer money from existing accounts. To lure them, some banks are paying a premium on new accounts with balances of $10,000 or more. Because of the $2,000 ceiling on annual contributions to IRAs, those accounts must have existed for at least five years.
Central Fidelity, Crestar, Dominion, Shawsville and Sovran banks are all offering a premium of an extra quarter-point interest on such $10,000 rollover IRAs. The bonus applies to specific maturities, however.
Dominion has a special rate for its 24-month IRA that applies to new accounts, money added to existing accounts and, on request, any maturing IRA.
Central Fidelity will pay a special rate to persons 55 and older who invest the full $2,000. The rate is 7.6 percent with a yield of 7.81 percent.
Crestar's special is a 12-month IRA with a rate of 7.1 percent and yield of 7.29 percent that can be expanded. The rate will apply to additional deposits throughout the year, and the certificate will mature on the anniversary of the initial deposit.
Crestar also has a six-month IRA that pays 7.65 percent if $2,000 is deposited by April 15.
by CNB