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Show TIME TO TAKE CARE OF YOUR IRA With most taxpayers now preparing to file their Federal income tax return for 1982, it is timely to remind readers of this column that a broad portion of the working work-ing population can set aside part of their earned income each year in an Individual In-dividual Retirement Account (comonly referred to as an IRA). This "self-help" program for preparing prepar-ing for retirement years actually originated with the 1974 change in the Federal Internal Revenue Code and took effect in 1975 but was limited to workers not covered by a qualified pension or profit-sharing plan at that time, and the annual contribution was limited to the lesser of $1,500 or 15 percent earned income. One portion of the Economic Recovery Tax Act of 1981 broadened the scope of the IRA concept. This came at a very good time, since the public was becoming becom-ing painfully aware of the appalling shaky financial status of the Social Security System. However, a special Commission appointed ap-pointed to recommend a solution to the problem recently agreed upon a course of action. But most students of the Social Security System seem to feel that the proposed resuscitation plan is largely a bandaid and Congress probably won't strengthen it. ELIGIBILITY FOR AN IRA Commencing in 1982, everyone (prior to the year an individual reaches age 70'2) with earned income could set up and maintain an Individual Retirement Account. Even workers covered by a qualified employer-sponsored pension,' profit sharing, annuity, or stock bonus plan are now permitted to establish an IRA. So, too, can Keogh Plan participants, par-ticipants, government employees (federal, state, county or municipal) covered by a retirement plan, and participants par-ticipants in a tax-sheltered annuity program pro-gram (i.e., educators, etc.). FEDERAL INCOME TAX DEFERRAL The immediate benefit of an IRA is the reduction of one's taxable income (for Federal income tax purposes) by any annual an-nual contribution up to the ceiling. Also, the income including any capital gains of an IRA enjoys tax-deferred status until withdrawal. Instances where both spouses have earned income, each can contribute the lesser of $2,000 or 100 percent of earned income for the year, and can take the appropriate ap-propriate deduction for Federal income tax purposes. Where one spouse has no earned income, in-come, a "spousal IRA" can be established establish-ed and up to $2,250 can be deducted on a joint tax return; but the contribution to each IRA can be split in any way, ex-; ex-; cept neighter account may receive more than $2,000 in any given year. FLEXIBLE, BUT WITH CAVEATS There is no requirement to contribute the maximum allowed or any set amount each and every year. However, skipping or under-contributing (there is no provision provi-sion currently for any make-up payments) means a smaller nest egg and under-utilized Federal income tax benfits. However, one should be aware of the restrictions. Penalties are assessed for partion or complete liquidation of an IRA prior to age 59 '2 (except for death or disability), failure to liquidate or commence com-mence a phase-out according to IRS guidelines of an IRA by age 70 '2, excessive ex-cessive contributions to an IRA in any given year, etc. CHOOSE YOUR INVESTMENT APPROACH How one employs IRA funds is a matter mat-ter of personal preference. Those more comfortable with maximum safety can opt for an IRA with a bank or thrift institution, in-stitution, allowing the income to compound. com-pound. But there are IRAs linked to mutual funds, etc. One can also establish a self -directed IRA brokerage account. A combination of IRAs is permitted, but the total contribution con-tribution cannot exceed the maximum which one can claim in a particular year. The important thing is that those who have not made their maximum IRA contributions con-tributions for 1982 can do so until they file their Federal income tax return (up to April 15). |