Subject: IC940601:IRA-III, Can I take IRA deduction?

From: "Gray Zhu, 800-289-2498, 212-279-6700" <[email-masked]>
Date: Wed, 1 Jun 1994 22:54:04 -0400 (EDT)

================= IC940600 ==================

Do you know?

    o 80% of all American households can take at least a partial IRA
      deduction, even if they have employer's retirement plan.
    o Even if your IRA contributions are not tax-deductible, 
      the earnings on those contributions compound tax-free until
      withdrawl. - you can always have an IRA account, enjoy
      the deferred tax on the earnings, and let the earnings make more 
      money for you. while for normal investment, you have to pay tax
      each year on the dividend and realized capital gain.

(CONTINUE IF YOU LIKE TO KNOW ...)

====================== table of contents ======================

1. Can you take the IRA Deduction?
2. How an IRA works
3. Rollovers of Distributions from Qualified Retirement Plans
4. IRA Transfers
===============================================================

1. Can you take the IRA Deduction?

- If you or your spouse are covered by your employer's retirement plan
  for any part of the year, you may be able to take a partial tax
  deduction.

- If you or your spouse are not covered by your employer's retirement
  plan for any part of the year, you can take full IRA tax deduction.

Check the following table and see if you are eligible for deduction.

   IRA deductibility for active participants in a qualified plan
   =============================================================

                 Modified Adjusted      Allowable IRA Deduction
Filing Status    Gross Income           For active participants
---------------------------------------------------------------------
Single           up to  $24999          Full amount
                 $25000-$34999          Deduction reduced by $200
                                        for every $1000 over $25000  
                 $35000 & Above         No deduction
---------------------------------------------------------------------
Married/joint    up to  $39999          Full amount
                 $40000-$49999          Deduction reduced by $200
                                        for every $1000 over $40000
                 $50000 & Above         No deduction
---------------------------------------------------------------------
Married/separate  up to $9999           Deduction reduced by $200
                                        for every $1000 of income
                 $10000 & Above         No deduction
---------------------------------------------------------------------

a) Modified Adjusted Gross Income - determined before reduction for 
   any deductible contribution to an IRA.
b) Married/Joint - either spouse is an active participant
c) When applying calculation to determine deductible limit, any amount
   greater than $0 but less than $200 is round up to $200.

2. How an IRA works

An IRA allows you to contribute up to $2000 annually toward
retirement, or $2250 between two IRAs if you have a non-working
spouse. The contribution can be invested somewhere (I have mentioned
in the previous messages) just as normal investment, the difference is
the tax treatment of the investment. Discuss with your financial
advisor/broker to set up an IRA account and IRA investment.

Tax-deferred compounding can have a dramatic effect on your retirement
savings. The following table compares a $2000 annual investment in an
IRA with the same investment in a taxable account at the 31% effective
rate, both earning 8% a year with earnings reinvested. you can see
that the IRA investment builds up to $244,692 over a 30-year period,
while the same investment in a taxable account products only $153,401.
Of course, the IRA assets will be subject to tax upon withdrawal; but
your retirement savings will probably come out far ahead with tax
deferral!

                 The Power of Tax-Deferred Compounding
                 =====================================
-------------------------------------------------------------------------
                5 years  10 years  15 years  20 years  25 years  30 years
-------------------------------------------------------------------------
tax-deferred    
returns         $12672    $31291    $58648    $98846    $157909   $244692
after-tax
returns         $11783    $27198    $47363    $73743    $108254   $153401
-------------------------------------------------------------------------

3. Rollovers of Distributions from Qualified Retirement Plans

An IRA rollover is a means of deferring taxes on a distribution of
plan assets that have been paid to you from your employer's qualified
retirement plan - due to retirement, job termination, or upon
termination of the plan. UNDER NEW LAW EFFECTIVE JAN. 1 1993, YOU ARE
NOW SUBJECT TO A 20% IRS WITHHOLDING TAX IF YOU CHOOSE TO HAVE THIS
DISTRIBUTION PAID TO YOU. You can, however, avoid this and other taxes
by making a direct rollover into an IRA. The monies will then
accumulate free of tax until withdrawl, according to the normal IRA
rules. As an alternative, you can choose to take receipt of your
distribution minus the 20% withholding tax, and roll the remaining 80%
into an IRA within 60 days after receipt - because the 20% is sent to
IRS, you have to make up the "missing" 20% out of your own pocket to
roll over if you do it after but within 60 days of the distribution.
you may get the 20% refund when you file your income tax next year.
And, if you are under 59.5 years old when you receive the
distribution, you may have to pay additional 10% penalty tax on any
amount that you do not roll over.

4. IRA Transfers

you can transfer your IRA from one trustee or custodian to another if
you are unhappy with the return you are getting. In the previous
messages, I have said that there are 4 place to invest an IRAl: bank
CD (less than 4% nowadays), insurance company (7%-8% return), mutual
funds (depending on fund performance), brokerage firm (depending on
where you invest).

- From Gray Zhu, Ph.D
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