An improved version of the nondeductible IRA called the "Roth IRA" will become available to taxpayers starting in 1998. Contributions to this new "backloaded" IRA will not be deductible. However, account holders will have the ability to withdraw funds completely tax-free under certain conditions. Previously, investment earnings could build up tax-free in a nondeductible IRA but were subject to taxes at the time of withdrawl.
Tax-free withdrawals generally are not allowed within the five-taxable-year period beginning with the first taxable year for which a contribution was made. Funds may be distributed from the Roth IRA tax-free:
A "qualified special purpose" is the payment of up to $10,000 in acquisition costs for a principal residence of a first-time homebuyer who is the taxpayer, his or her spouse, or any child, grandchild, or ancestor of the taxpayer or the taxpayer's spouse.
The most that can be contributed annually to a Roth IRA is the lesser of $2,000 or the individual's compensation. This limit is futher reduced by any contributions made to other IRAs maintained for the individual's benefit. On the plus side: Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has reached age 70 1/2. And the tax law's minimum distribution rules applicable to IRA owners over age 70 1/2 aren't applicable to Roth IRAs.
The contributions of higher-income individuals are subject to phaseout. The phaseout range for joint fillers begins with AGI over $150,000 and extends to $160,000. For other (except married-separate filers) the range starts once AGI exceeds $95,000, with full phasout at $110,000.
Taxpayers may roll over amounts from existing deductible or nondeductible IRAs to a Roth IRA. However, any taxable amounts that are rolled over from a current IRA must be included in income. If the rollover is made before 1999, the income is includable ratably over four tax years. The rule allowing a rollerover does not apply if the taxpayer's AGI exceeds $100,000 or the taxpayer is married filing separately.
Penalty-free Early Withdrawls. Some people are hesitant to place their savings in an IRA because they don't want to incur a 10% penalty should they need to withdraw their funds before age 59 1/2. While the tax code does permit pre-age-59 1/2 withdrawls without penalty in some circumstances ( disability, for example), these situations are limited. The new law expands the number. In addition to educational-related withdrawls discussed earlier, the new law allows distributions for qualifying first-time homebuying expenses of up to $10,000 without penalty, effective for 1998 and later years.
Securities offered through:
American General Securities Incorporated
2727 Allen Parkway, Suite 290
Houston, Texas 77019
(713)-831-3806
Member NASD/SIPC
Financial Liberty Group and AGSI are separate and unrelated companies