■FINANCE
The IRA—still a good strategy
by Bere Lindley and Julia Lucich
W
■hen the Tax Reform Act of
1986 (TRA-86) was enacted
one year ago, one feature
that received much attention was the '
reduced benefit of Individual Retire
ment Arrangements (IRAs). When
the news of this aspect of the TRA-86
got out, many of the people affected
by the changes were discouraged from
continuing their IRA contributions.
What many people do not realize
is that if an IRA made sense before
the law was changed, it will probably
continue to be a wise program.
Another fact that can get overlooked
is that many people are entirely un
affected by the new restrictions. In
any case, we must keep in mind the
fact that IRAs were designed for long
term accumulation or retirement
funds, not to save up for shorter term
needs such as emergency cash. You
probably should not be involved with
an IRA until you have considered your
shorter term savings needs.
A brief review of the prior law
reveals that any taxpayer could claim
a deduction on his or her tax return
for the amount contributed to an IRA,
up to $2,000, so long as the taxpayer
had earned income that year of at least
the amount deducted on the tax re
turn. In addition, a non-working
spouse could contribute (and deduct
on the tax return) up to $250 to a
“spousal” IRA.
So then, precisely who is affected
by the change and who is not? There
are three groups of taxpayers which
are each affected differently by the
change of law, so you first need to
determine which group you belong to.
What the TRA-86 changed was the
amount over $40,000 ($25,000 for
single taxpayers), and then only if the
taxpayer (or the taxpayer’s spouse) is
an active participant in an employer
sponsored retirement or tax sheltered
annuity plan. In other words, you are
unaffected by the rule changes if you
and your spouse are not participating
in an employer sponsored plan, OR
you are participating but your adjusted
gross income is under $40,000
($25,000 for single taxpayers). This
is Group One. If you are in Group
One, you are probably well advised
to use your IRA to the maximum
extent.
Supper
at
Southtowne
Light dinners from 5-8 pm,
Monday through Saturday.
Music from 6-8 on Friday
nights.
JOIN US!
Southtowne
Shoppes
28th & Oak
Eugene
The COFFEE CORNER Ltd..
If you fall outside the unaffected
group, an IRA may still be worth
while. Under the new rules, if the tax
' payer (or spouse) participates active
ly in an employer sponsored plan and
adjusted gross income exceeds
$40,000 ($25,000 for single tax
payers), the available tax deduction
for an IRA slopes down from $2,000
at $40,000 ($25,000 for single tax
payers) of adjusted gross income to
zero at $50,000 ($35,000 for single
taxpayers) of adjusted gross income.
This income range constitutes Group
Two. For members of Group Two,
some amount of tax deduction is still
available. For example, a Group Two
married taxpayer with adjusted gross
income of $45,000 would qualify for
half the maximum deduction, or
$1,000. So, taxpayers who fit into this
income range still can benefit from
contributing to their IRAs.
it your adjusted gross income is
$50,000 ($35,000 for single taxpayers)
or greater, and you (or your spouse)
participate actively in an employer
sponsored plan, then you belong to
Group Three, and you cannot deduct
any amount for an IRA on your tax
return. Yet there is still one very im
portant tax benefit available to Group
Three taxpayers who contribute to an
IRA. Even though as a Group Three
taxpayer you cannot deduct any of
your IRA contribution, the earnings
of your IRA investments are tax free
until they are withdrawn from the
IRA. This single tax break increases
in importance as your income in
creases and your IRA balance
increases.
Let’s conclude with three sugges
tions to guide your IRA strategy. If
you are in Group One you might want
to make the maximum contribution to
your IRA. This may be especially ad
vantageous if you have no alternative
such as an employer sponsored retire
ment or profit sharing plan. If you are
in Group Two, you can make the max
imum possible contribution to your
employer sponsored plan to maximize
the deductions on your tax return,
then contribute to your IRA up to the
maximum deduction amount for your
income level. If you are in Group
Three, first make the maximum possi
ble contribution to your employer
sponsored plan in order to get the
maximum tax deduction available.
Then, you may want to make a nonde
ductible IRA contribution up to the
maximum amount for a sheltered in
vestment. This maximum amount is
$2,000 per working taxpayer, and
$250 for a non-working spouse.
However, taxpayers in Uroups two
and Three may have some expensive
accounting difficulties upon with
drawal if they have made nondeduc
tible contributions. For this reason,
you and your advisor may wish to con
sider tax exempt alternatives to non
deductible IRA contributions.
Finally, the caveat: These explana
tions and recommendations are high
ly generalized and will not yield the
best results in every case. See your
own financial or tax advisor for help
with an individual strategy.
Questions or suggestions for future
articles may be sent to: W.H. Finance,
335 W. 20th, Eugene, OR 97405.
[Be re W. Lindley, CPA is a partner in
the accounting firm of Blackburn &
Lindley, which offers Tax, Planning,
Estate, Accounting, and Management
Advisory Services. Julia Lucich is an
agent/Registered Representative of the
New York Life Ins. Co. /New York Life
Securities Corp., specializing in
Business Insurance and Estate Plan
ning.!
MICHAEL
WILLIAMS
Now listing &sell
. ing real property
► • Residential
• Lots & Acres
Bus. 484-9815
A MEMBER OF THE SEARS FINANCIAL NETWORK
COLD UI CLL
BANKORO
CURTIS IRVING REALTY, INC.
1142 WILLAGILLESPIE RD. #7
Res. 484-0024
Invest
in your
principles.
Socially Responsible
Investing
We invest in companies
which are making a
positive impact on the
world through their
products, services and
business ethics. We avoid
investments in South
Africa, weapons
manufacturing or
nuclear energy.
We invite you to contact
us right away for a
brochure or to schedule a
meeting at no charge.
There is no minimum
investment
Progressive Securities
Investment Services
Portland Office 503 224 7828
Eugene Office 503345.5669
PO. Box 3860
Eugene. Oregon 97403
SUPPLIES
Colors, easels, paper, and all
kinds of special supplies for
budding artists.
n,"rs
Oew,
jz
"os)
873 Willamette Street
Eugene • 344-1640
BASKETS
A basket filled with fine
gifts and gourmet delights
makes the perfect gift for
friends and loved ones
For all occasions
CALL US 342-6799
Special Holiday Season Hours e
EUGENE MAIL CENTER, INC.
1430 Willamette Street • Phone 484-5889
OPEN 7 DAYS A WEEK
8 AM to 6 PM (Nov. 30 to Dec. 24)
Ship your packages via UPS
also PUROLATOR and FEDERAL EXPRESS
ASK ABOUT OUR SPECIAL MAIL BOX SERVICES, TOO J
Q
□
a
VANGIZE(SLAM)
formerly lade Island
AUTHENTIC SZECHUAN and
HUNAN CUISINE
1
I
L
SEAFOOD SPECIALTIES
DAILY LUNCH SPECIAL
$1.95
M-F 11:30-9:00, Sat-Sun 5-9:00
are
nmr
nrr
(
325 Blair Blvd. 683-4722
=1A। , -.. ihi . - 1. ira ===
srr
11
NRiEyEi 3
519 E.13th
Ukkiki
20%
OFF !
ALL "ANIMAL PRINTS” & ACCESSORIES
WITH THIS COUPON Thru Dec. 24,1987
SXSBbSIR GAPB
r
Some highlights from our new
December Menu
• Grilled Beef Tenderloin
with Romescu Sauce
• Fried Yaquina Bay Oysters
with Remoulade Sauce
• Herb Spaghettini with
Chicken, Hazelnuts and Cream
• Prawns sauteed with Green Pepper
corns, Sauce with Dijon Cream
$6.95-$12.75
Available for Holiday Parties
Serving meals
Sun-Thur until 9
Fri & Sat until 10
Open until
Midnight
754 East 13th Avenue Eugene, Oregon 342-6963
