Legislation that was passed in 1997 brings sweeping changes to individual retirement accounts (IRA) and offers you many opportunities. Your accountant or certified financial planner will help you determine which options are best for you. And, your credit union is prepared to discuss how our IRA program fits into your retirement strategy. Below is a summary of the new IRA rules.

New Penalty-Free IRA Withdrawals

Beginning in 1998, you may withdraw from your IRA without penalties to pay for education expenses or to purchase a first time home for you, your spouse, your children or grandchildren.

If you're purchasing your first home, you and your spouse can each withdraw up to $10,000.00. Keep in mind that while you'll avoid the penalty, you must still pay income tax on these distributions.

More People Qualify for Tax Deductions

Starting with tax year 1998, more members can take tax deductions for their IRA contributions. The eligible income range will increase to $50,000.00 - $60,000.00 for joint filers and $30,000.00 - $40,000.00 for single filers.

The new ranges apply for tax year 1998, so if you are making IRA contributions in 1998 for tax year 1997, the current ranges apply.

Good News for Nonworking Spouses

Starting with tax year 1998, if you are a nonworking spouse you can make a deductible IRA contribution regardless of whether your spouse participates in a qualified retirement plan. In general this is true as long as you jointly earn less than $150,000.00.

New Roth IRA allows tax free withdrawals

Lastly, a new type of IRA the Roth IRA, is available in 1998. You cannot take tax deductions for contributions to your Roth IRA. However, you can make tax-free withdrawals form a Roth IRA, as long as your funds have been in the account for five years and you are either over age 59½, disabled, buying your first home or paying for qualified education expenses. If you have $2000.00 of compensation you can contribute up to $2000.00 total per year to all retirement IRA's.

You may convert your regular IRAs to Roth IRAs under certain conditions. If you decide to do so, you'll still owe taxes on the withdrawal from your regular IRA. However, if you make your conversion in 1998, you can spread the taxable income equally over a four-year period.

Contact the credit union if you have questions about the new IRA rules. The credit union will be offering some great rates on our IRA's. Give us a call to check our rates.