Iras Offer Workers An Avenue To Accumulate A Retirement Nest Egg

Now that the pressure is off, but data gathered to meet the April 17 tax deadline is still lying around handy, another look at financial planning could be in order.

Investment advisers emphasize the merits of opening an Individual Retirement Account - whether or not the contribution is tax deductible.

“Individual Retirement Accounts (IRAs) are still one of the most effective tax-deferred ways to save,” counsels Allen B. Jones, senior vice president of Merrill Lynch. “Even if you don’t qualify for current tax deductions, you should consider contributing to an IRA because of the potential tax-deferred growth of your assets.”

Unfortunately, no articles I’ve read lately spelled out how one qualifies for a tax-deductible IRA, much less one that is non-deductible but tax-deferred.

And, trust me, these are not trivial distinctions. The difference is a great many ifs, ands and buts.

So, after talking with a number of investment experts about the subject, my advice is, before buying, visit a financial planner.

Either that, or curl up with IRS Publication 590, which explains eligibility and contribution limits for IRAs.

Having said that, the following very rudimentary presentation is offered with editing help from Bill Childs in the Spokane office of LeMaster & Daniels.

Generally speaking, to qualify, a person’s contribution must be earned by his or her own labor or by providing services - not from rent, dividends or other investment returns.

For persons not covered by an employer-sponsored pension plan, there are no upper limits on income.

But for deductible IRAs, the adjusted gross income of a single worker covered by an employer-sponsored pension plan cannot exceed $34,999 a year.

For working couples, either of whom is covered by an employer-sponsored pension plan, the upper limit for adjusted gross income is $49,999.

So much for deductible IRAs. But what’s a non-deductible IRA good for, and who would want one?

Well, essentially they are for workers who have maxed out their company pension plans, but still could use a tax-deferred investment.

By sheltering income on an investment until after retirement, a person can put off paying taxes on the buildup of investment returns until total income is lower, and thus tax levels are more advantageous.

As with all IRAs, the maximum contribution is $2,000 for a single worker; or $2,000 for each of a working couple.

Where one spouse is not employed, there is such a thing as a spousal IRA.

But there are several wrinkles to this that are best tackled by a financial expert.

Both President Bill Clinton and Speaker of the House Newt Gingrich have promised to do their utmost in the coming budget battle to create new super IRAs for the middle class.

Under Clinton’s so-called “Middle Class Bill of Rights,” the upper limit for tax-free treatment of IRAs would be raised to $100,000.

Gingrich’s proposed American Dream Savings Account, part of the GOP “Contract With America,” would allow individuals to put $2,000 a year into a new kind of savings account. Unlike tax-deductible IRAs, taxes would be paid on the earnings that go into the dream account. But taxes would not be owed on the amount withdrawn if used for retirement, purchase of a first home, college expenses or medical costs.

Pre-approved credit cards increasingly are showing up in homemaker’s mail - unsolicited.

Don’t cut up unwanted cards and just toss them, warns the National Center for Financial Education (NCFE).

Instead, send back the pieces to their maker.

Unless you return the pieces, “the issuer doesn’t know you don’t want the credit card account open,” advises the non-profit San Diego-based consumer education group.

“The opened account will appear on your credit file and may cost you badly needed credit or an increase in present credit limits in the future,” according to NCFE.

Say, you receive a couple pre-approved cards for $2,500 each and trash the lot. Next, a few months down the road, you opt to increase your current credit limits. But, surprise, you are denied.

“The reason may be,” says NCFE, “that your present lender is concerned about the $5,000 of available credit noted on your credit file.” Your lender figures you might be unable to repay a new loan plus the $5,000 in other credit purchases you have available.

What $5,000 in other credit purchases?

“To a prospective lender,” says the financial education center, “available credit is considered ‘used’ money.”

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The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review