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Roth and Traditional IRAs

Conversions from traditional to a Roth IRA are allowed if taxpayer:

• Has adjusted gross income under $100,000
• Files a joint income tax return (if married), and
• Pays taxes on all dollars moved. If rollover is completed in 1998, taxable income may be spread over 4 years and will be taxed at each year's tax rate.

Factors to discuss with a tax adviser before choosing an IRA:

• The number of years you have until retirement
• The number of years you expect to be retired
• Your current federal income tax rate and your anticipated income tax at retirement
• The annual rate of return you expect on your investments before and during retirement
• The amount you plan to save each year.

Traditional v. Roth IRA

• Who's eligible to invest?

  Traditional	Working taxpayers under age 70 1/2.
  Roth	Full benefits available to working taxpayers of any age with adjusted gross income (AGI) below $95,000 (single) or $150,000 (married, filing jointly). Single filers with AGI between $95,000-$110,000 and joint filers with AGI between $150,000-$160,000 may contribute reduced amounts.

• Maximum contribution

  Traditional	$2,000 per year (single) or $4,000 per year (married, filing jointly) to any combination of traditional and Roth IRAs. Contributions in any given year may not exceed compensation earned in that year.
  Roth	$2,000 per year (single) or $4,000 per year (married, filing jointly) to any combination of traditional and Roth IRAs. Contributions in any given year may not exceed compensation earned in that year.

• Tax advantages

  Traditional	Taxes on gains, dividends, and interest are deferred until money is withdrawn. No penalties on withdrawals if taxpayer is: 1) age 59 1/2, or 2) buying a first home ($10,000 lifetime maximum), or 3) paying for college expenses, or 4) disabled or deceased.
  Roth	Contributions may be withdrawn tax-free at any time. Earnings may be withdrawn tax-free if account has been open 5 years and taxpayer is: 1) age 59 1/2, or 2) buying a first home ($10,000 lifetime maximum), or 3) disabled or deceased. Contributions from conversion IRAs must remain on deposit for 5 years to avoid withdrawal penalty.

• Deductible contributions

  Traditional	Yes, for taxpayers who don't have employer-sponsored retirement plan, or who have adjusted gross income (AGI) below $25,000 (single) or $40,000 (married, filing jointly). Single filers with AGI between $25,000-$35,000 and joint filers with AGI between $40,000-$50,000 may deduct reduced amounts. All thresholds will increase in 1998.
  Roth	No.

• Withdrawal penalties

  Traditional	Withdrawals of contributions and earnings are subject to 10% penalty unless taxpayer is: 1) age 59 1/2, or 2) buying a first home ($10,000 lifetime maximum), or 3) paying for college expenses, or 4) disabled or deceased.
  Roth	Withdrawals of earnings are subject to taxes and a 10% penalty unless taxpayer is: 1) age 59 1/2, or 2) buying a first home, or 3) disabled or deceased. Withdrawals of earnings for college expenses will be subject to taxes but not penalties.

• Distribution rules

  Traditional	Investors must start withdrawing money by age 70 1/2.
  Roth	No requirement to start withdrawing money by 70 1/2.

*APY is Annual Percentage Yield.