Important Changes

Modified AGI limit for traditional IRA contributions increased. For 2000, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross income (AGI) is between:

• $52,000 and $62,000 for a married couple filing a joint return or a qualifying widow(er),
• $32,000 and $42,000 for a single individual or head of household, or
• $-0- and $10,000 for a married individual filing a separate return.

For all filing statuses other than married filing a separate return, the upper and lower limits of the phaseout range increased by $1,000. See How Much Can I Deduct? in chapter 1.

New method for calculating net income takes losses into account. A new method for calculating net income associated with returned contributions and recharacterized contributions allows net income to be a negative amount. If no deduction is claimed for a contribution, there is no penalty if you withdraw the contribution or if you recharacterize it and withdraw or transfer (in the case of a recharacterization) any net income earned on the contribution by the due date of your return (including extensions) for the year. Prior to 2000, if your contribution suffered a loss while it was in an IRA, it was only taken into account in calculating net income for purposes of a recharacterization.

Beginning in 2000, the new calculation method allows you to take into account any loss on a returned or recharacterized contribution while it was in the IRA when calculating the amount of net income that must be withdrawn or recharacterized. If there was a loss in either case, net income may be a negative amount. See Excess Contributions Withdrawn by Due Date of Return in Chapter 1 and Recharacterizations in Chapter 2.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

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