IRS Doesn't O.K. Specific IRA Investments

WASHINGTON - Despite what you may hear the Internal Revenue Service says there's no such thing as an "IRS-approved" investment vehicle for your individual retirement arrangement (IRA). The IRS cautions you to look into the soundness of your IRA investments and to know the current tax rules on IRAs.

The approaching April 17 deadline for making 1994 IRA contributions may bring out misleading ads for highly speculative products. Since the IRA contribution deadline can't be extended, you may be tempted to invest before you can investigate.

The IRS does not review or approve specific investments, nor does it advise people on what to do with their IRAs. Be wary of any product claiming to be IRS-approved or "IRA-approved."

The IRS does issue letters to IRA sponsors certifying that they are complying with requirements concerning investor rights, account administration, and standards that allow contributions to be deductible. The IRS does not endorse particular investments.

You may contribute up to $2,000 of earnings to an IRA each year until you become 70-1/2, when withdrawals become mandatory. Earnings on IRAs are tax-deferred until withdrawn. Penalties usually apply to withdrawals made before you are 59-1/2.

You may deduct your full IRA contribution if neither you nor your spouse is covered by a pension plan, or if your income is under $25,000 -- $40,000 if married filing a joint return. A limited deduction is available if your income is not more than $10,000 above those amounts. If covered by a pension plan, you get no deduction for IRA contributions if your income is above $35,000 -- $50,000 if married filing jointly.

If you make nondeductible IRA contributions, you must file Form 8606 each year you make such contributions or withdraw any amounts from your IRAs. The total nondeductible amount is your IRA basis, which is not taxed when withdrawn. You need not segregate deductible and nondeductible investments, since the basis computation applies to the total value of all your IRAs when withdrawals occur.

For more details, get the free IRS Publication 590, "Individual Retirement Arrangements (IRAs)," by calling 1-800TAX-FORM (1-800-829-3676).

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