Tax Relief Act of 1997

Savings/IRAs (Individual Retirement Accounts)

Tax deductible IRAs

• New IRA rules make IRA benefits available to more middle and upper-middle class taxpayers.

• Incremental increase in income limits for active participants. For 1998, joint filers have a phaseout limitation of $50,000 to $60,000 (single filers $30,000 to $40,000). By year 2007, joint filers have a phaseout limitation of $80,000 to $100,000 (single filers phaseout between $50,000 and $60,000).

• Effective January 1, 1998, spouses contributions are no longer limited by the other spouse�s active participation in a qualified plan for couples earning less than $150,000.

New "Roth" IRAs - Nondeductible Tax-Free IRA (effective after Dec. 31, 1997)

• No deduction is allowed for contributions

• Limits based on modified AGI - (Joint $150,000 to $160,000 and singles $95,000 to $110,000).

• Maximum amount allowed as a contribution limited to IRA contribution limit ($2,000). with contributions to other IRA accounts take into consideration

• Contributions allowed after age 70 1/2

• Qualified distributions are not included in income nor subject to 10% penalty

• Made after individual attains age 59 1/2

• Made to a beneficiary on or after death of the individual

• Made because the person is disabled

• Is a qualified special purpose distribution.

• Allows tax-free buildup and withdrawal

• Tax on withdrawals from deductible IRA can be spread over four years if the distributions are rolled over into a Roth IRA. Only taxpayers with AGI of $100,000 or less are eligible for this type of rollover.

Penalty-free Distributions to Purchase First Home (effective after Dec. 31, 1997)

• An exception to penalty for early withdrawal (10% penalty) provided for certain plan distributions for the purchase of a first home. Exception includes distributions from both tax deductible IRAs and Roth IRAs.

• Distributions must be used to pay qualified acquisition costs within 120 days.

Penalty-free Distribution for Educational Expenses (effective after Dec. 31, 1997)

• Exception to 10% penalty for qualified higher educational expenses.





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