Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 3, 1995 TAG: 9504030002
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: DAVE SKIDMORE ASSOCIATED PRESS
DATELINE: LENGTH: Medium
The chart accompanying this story shows rates paid by banks in the Roanoke Valley, but you can invest your IRA in a mutual fund as well. In fact, you can have several IRA accounts in different types of investments.
If you qualify, you have until April 17 to make your contribution for 1994. President Clinton and members of Congress are talking about expanding eligibility for IRA deductions. But right now only employees with no retirement plan at work automatically qualify for up to a $2,000 deduction.
Some pension-covered employees are eligible, too. The full $2,000 deduction is available to covered employees with adjusted gross incomes incomes of not more than $40,000 (if they are married and filing jointly) and $25,000 (if they're single).
The deduction is phased out until it disappears altogether for pension-covered employees with incomes of $50,000 (married filing jointly) and $35,000 (single).
Partial deductions are equal to 20 percent of the difference between your income and the upper limit for your filing status. For instance, a married couple earning $45,000 is eligible for a $1,000 deduction - 20 percent of the $5,000 difference between $45,000 and $50,000.
When calculating a partial deduction, round it up to the next $10. However, couples earning between $49,000 and $50,000 and single people between $34,000 and $35,000 take a $200 deduction.
Even if only one spouse is covered by a company pension, that limits the deductible contributions of both.
Keep in mind, you generally can't contribute more than you earn. There's an exception for non-working spouses. In that case, a couple can establish two IRAs and contribute a combined total of $2,250. The contribution can be split up in any way the couple desires so long as the larger contribution doesn't exceed $2,000.
If both spouses have at least $2,000 income, they each can contribute up to $2,000 provided their combined income falls below the $40,000 limit.
But even if you don't qualify for a deductible contribution, it may be worth your while to make a non-deductible contribution of up to $2,000. That's because IRA earnings aren't taxed until they're withdrawn and that can represent a significant savings in the long run.
The first principle of investing in an IRA is never put in money you think you will need before retirement. There's a 10 percent additional tax for withdrawing funds before you reach the age of 591/2.
In general, contributions must stop and withdrawals must start when you reach 701/2.
Contributions that were deducted from your income when put into your IRA will be taxed when withdrawn. However, contributions that weren't deducted won't be taxed on withdrawal. But you must designate them as non-deductible each year by filing Form 8606. Be sure to save the form permanently.
Interest on both deductible and non-deductible contributions will be taxed when withdrawn.
by CNB