IRA PLANNING TIPS

IRA PLANNING TIPS

You are Never Too Old for an IRA
	After reaching the age of 70 1/2, a person cannot contribute any funds to a regular IRA and must start withdrawing funds from an IRA. But, as of January 1, 1998, a person can put up to $2,000 per year into a Roth IRA. There is no age limit to Roth IRA contributions, as long as the person has earned income (such as from a salary). Interest and Dividends are not earned income. There are no withdrawal requirements for a Roth IRA. The money can be kept in the IRA as long as desired. There is no tax deduction available for a Roth IRA when the funds are deposited, but all distributions are tax free.
Convert your IRA to a Roth IRA
	During 1998, you can convert a regular IRA into a Roth IRA, but you must pay taxes on the amound rolled over. This is because the IRA deposits were tax deferred. To be eligible for this rollover, a taxpayer's AGI cannot exceed $100,000, including the amounts rolled over. Although this may seem like a steep price, the IRS allows the distribution amount to be spread out over four years for tax purposes. This means that if you roll over $40,000 from a regular into a Roth IRA, you pay tax on $10,000 per year, not the full $40,000 all at once.This could lower you total tax bill and even keep you from moving into a higher tax bracket.
IRAs are Part of Your Estate
	If you have an IRA and name as beneficiaries your children, the money in your IRA will pass on to them but is not excluded from your estate. You cannot shield these funds from being part of your estate by holding them in an IRA. The same is true if the money was held in an employer-sponsered retirement plan such as a 401(k).
Non-Working Spouse Can Contribute More to IRA
	If the spouse of an active participant in a employee-sponsored retirement plan is not an active participant, the limits for the spouse are greater and are as follows if a joint return is filed. If the combined AGI on the return is less than $150,000, a fully deductible $2,000 contribution can be made by the non-participating spouse. For AGI between $150,000 and $160,000, the deductible contribution is reduced using the same formula as for an active participant. For example, Russ and Rena have a combined AGI of $100,000 in 1998. Rena is an active participant in an employee-sponsored plan, Russ is not. Russ can deduct up to $2,000 for an IRA since the combined AGI is less than $150,000. Rena cannot deduct any amount for an IRA since AGI is above the $60,000 maximum limit ($50,000 + $10,000).