Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 8, 1993 TAG: 9303060008
SECTION: BUSINESS PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
IRAS PROMOTED AS TAX SHELTERS
Even if you can't deduct contributions to an Individual Retirement Account, you still can shelter the account's earnings from taxes.That makes IRAs popular, especially at this time of year when people can - until April 15 - make contributions for 1992 as well as for 1993.
So it's no surprise that banks are offering promotional rates right now. IRA accounts also can be set up with managers of mutual funds or with securities brokers.
Brokers, like many of the larger banks, offer self-directed accounts as well as specific IRA investments.
People with self-directed accounts can invest in just about anything, even in a combinations of different investments.
John Parrott of Wheat First Securities in Roanoke said his clients invest in anything from bank certificates of deposit to stocks. It depends, he explained, on whether they are seeking current income or growth for the future.
The most popular stocks, according to Parrott, are those with both good dividends and opportunity for appreciation. Investors also like bonds with medium to short terms to maturity.
The Virginia Society of CPAs pointed out that the greatest tax savings of an IRA is not in the initial contribution but in the tax-free compounding of earnings.
"When weighing the benefits of IRAs against other investment options," the society said, "determine whether the accumulation of tax-deferred income in your IRA will give you a greater rate of return at withdrawal than other taxable or tax-free investments."
If you are under the age of 59 1/2, however, you should have an emergency cash fund on hand before you lock away your savings in a retirement account that you cannot reach without a penalty.
Anyone under the age of 70 1/2 with earned income from a job or self-employment can contribute to an IRA.
The ceiling is $2,000 a year or, if one spouse doesn't work, $2,250 split between two accounts. You cannot contribute more money than you actually earn.
But you can contribute a lesser amount or skip a year. Banks accept minimums of much less than the $2,000 to open an account, and most will let people add throughout the year.
You can have more than one IRA account, perhaps putting some money into a bank certificate and the balance into a mutual fund.
And you can roll over the money from one trustee to another if you don't like the earnings of your present account. Banks can, however, charge an early withdrawal penalty if the underlying certificate is short of maturity.
You can avoid tax withholding by arranging for a direct transfer between trustees so that you don't take control of the money.
The Virginia Society of CPAs said that deduction of the contribution is limited to two categories of individuals:
All workers who do not have an employer-sponsored retirement plan at work. In the case of couples, neither can participate in a work-related retirement plan.
People who do participate in a retirement plan but whose income falls below specific thresholds.
A married couple who file jointly and whose adjusted gross income is less than $40,000 can each deduct their full contributions up to the annual ceiling.
A single person eligible for an employer plan can still claim the deduction if he or she earns up to $25,000.
A partial deduction is allowed for married couples who file jointly and have adjusted gross income of $40,000 to $50,000 and for single persons earning between $25,000 or $35,000.
Couples with income over $50,000 and singles who earn more than $35,000 no longer can claim the deduction if they have a company retirement plan.
Regardless of the deduction, however, the interest and other gains accrue without taxes until the money is withdrawn at retirement.
Unless you are disabled, you must pay a 10 percent penalty, in addition to the taxes due, if you withdraw money prior to the age of 59 1/2.