Deductability Of Ira Depends On Income Level

There’s still one day for you to contribute up to $2,000 to an Individual Retirement Account for the 1995 tax year. Your contribution must come from earned income - money you worked to earn rather than money from sources such as trusts, gifts or investment earnings.

For many people, the decision to open, or to add to, an IRA depends on whether the contribution is tax-deductible. Regardless of whether your contribution is deductible, your IRA earnings will be tax-deferred until you begin making withdrawals.

If neither you nor your spouse is covered by a pension plan at work - including a 401(k) - your IRA contribution is fully deductible.

If you or your spouse are covered by a pension, you still may be able to deduct part or all of your IRA contribution. Here is a partial list of criteria.

If you are married and your adjusted gross income is:

Under $40,000, your IRA contribution is fully deductible.

Over $50,000, it is not deductible.

From $40,001 to $49,999, between $200 and $1,990 of your contribution is deductible. Figure the exact amount using the worksheet with your 1040 form.

If you are single and your AGI is:

Under $25,000, your IRA is fully deductible.

Over $35,000, it is not deductible.

From $25,001 and $34,999, between $200 and $1,990 is deductible. Figure it with the 1040 worksheet.

In emergency, cash is king

If you can remember no other rule for coping with a layoff, it’s this: Cash is king.

Assuming you didn’t brace for this day by saving up several months’ living expenses, here are ways to shore up your finances:

Open as big a home-equity line as possible as soon as you even suspect a layoff is possible.

Identify other sources of income you could tap, including severance, investments, cash-value life insurance.

Prioritize your expenses by identifying bills that are necessities, discretionary or special needs. Note creditors who would be most likely to accommodate late payments.

Reorganize your investment portfolio to boost liquidity.