March 24, 1995
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on IRAs are tax-deferred until withdrawn.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which is not taxed when withdrawn.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
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