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Show Time T M Cm Of IwtlM 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 population can set aside part of their earned income in-come each year in an Individual Indi-vidual Retirement Account (commonly referred to as an IRA). THIS "self-help" program for preparing for retirement years actually originated with the 1974 change in the Federal Internal Revenue Code and took effect in 1975 but was limited li-mited to workers not covered by a qualified pension or pro fit-sharing plan at that time, and the annual contribution was limited to the lesser of $1500 or 15 percent of earned income. One portion of the Economic Econo-mic Recovery Tax Act of 1981 broadened the scope of the IRA concept. This came at a very good time, since the public pub-lic was becoming painfully aware of the appallingly shaky financial status of the Social Security System. HOWEVER, a special Com mission appointed to recommend recom-mend 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 prob-ably won't strengthen it. Commencing in 1982, everyone every-one (prior to the year an individual indi-vidual reaches age 70':) with earned income could set up and maintain an Individual Retirement Re-tirement Account. Even workers work-ers covered by a qualified employer-sponsored pension, profit sharing, annuity, or stock bonus plan are now permitted per-mitted to establish an IRA. SO, TOO, can Keogh Plan participants, government employees em-ployees (federal, state, county, coun-ty, or municipal) covered by a retirement plan, and participants partici-pants in a tax-sheltered annuity annui-ty program (i.e., educators, etc.). The immediate benefit of an IRA is the reduction of one's taxable income (for Federal income in-come tax purposes) by an annual contribution up to the ceiling. Also, the income-including 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 $2000 or 100 percent of earned income for the year, and can take the appropriate deduction for Federal income tax purposes. Where one spouse has no earned income, a "spousal IRA" can be established and up to $2250 can be deducted on a joint tax return; but the contribution con-tribution to each IRA can be split in any way, except neither account may receive more than $2000 in any given year. THERE IS no requirement to contribute the maximum allowed or any set amount each and every year. However, Howev-er, skipping or under-contributing under-contributing (there is no provision provi-sion currently for any make-up payments) means a smaller next egg and under-utilized Federal income tax benefits. However, one should be aware of the restrictions. Penalties are assessed for par tial or complete liquidation of an IRA prior to age 59': (except (ex-cept for death or disability), failure fa-ilure to liquidate or commence a phase-out-according to IRS guidelines-of an IRA by age 70':, excessive contributions to an IRA in any given year, etc. HOW ONE employs IRA funds is a matter of personal preference. Those more comfortable com-fortable with maximum safety can opt for an IRA with a bank or thrift institution, allowing the income to compound. 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, permit-ted, but the total contribution cannot exceed the maximum which one can claim in a particular parti-cular year. The important thing is that those who have not made their maximum IRA contribution for 1982 can do so until they file their Federal income tax return (up to April 15). |
