Planning for Retirement

 

"Contributions are restricted to two thousand dollars or one hundred percent of your earned income, whichever is less. Mind you, a one-income couple is now permitted to contribute two thousand dollars for each spouse, as long as the couple has at least four thousand in earned income. A great thing about IRAs, in fact, a great thing about all of the alternatives we're about to discuss, is that once your money is in the plan, it is allowed to grow on a tax-deferred basis until withdrawn."

"A second major advantage," a somewhat-informed Cathy ventured, "is that the two-thousand-dollar contri-bution is tax-deductible!"

"May be tax-deductible," Roy corrected her. "The rules are somewhat more complicated than they used to be, but generally they allow more people to deduct IRA contributions now than in the earlier part of the nineties. If neither you nor your spouse, if you have one, is covered by any type of retirement plan, profit-sharing arrangement, or Keogh plan, then one or both of you, whatever the case may be, may make a tax-deductible IRA contribution no matter how much money you're making. If one spouse is covered by a plan and the other is not, the non-covered spouse can make a fully deductible contribution as long as the couple's adjusted gross income is not more than one hundred and fifty thousand.

"Dave, since you're covered by a retirement plan, you can fully deduct IRA contributions only if your adjusted gross income is fifty thousand or less. As a single person, Tom, you can fully deduct contributions if your adjusted gross income is thirty thousand or less. Once your income exceeds those levels, the deductible portion of your IRA contributions drops from one hundred percent to zero at the