General IRA Changes in 1997 Tax Act

Improvements in ability to contribute to IRA

Wavier of withdrawal penalties in more cases

Elimination of "success tax"

Improvements in ability to contribute to IRA

Increased ability to contribute to a deductible IRA even if already covered by a retirement plan at work

If you are covered by a retirement plan at work (401(k), 403(b), pension etc.) your ability to contribute a deductible amount to your IRA is phased out at fairly low AGI (in 1997, $25,000 for singles and $40,000 for joint filers)

New law gradually raises phase-out levels over the next decade

Tax Year		Phase-out for singles		Phase out for joint
1997		$25,000-35,000		$40,000 - 50,000
1998		30,000 - 40,000		50,000 - 60,000
1999		31,000 - 41,000		51,000 - 61,000
2000		32,000 - 42,000		52,000 - 62,000
2001		33,000 - 43,000		53,000 - 63,000
2002		34,000 - 44,000		54,000 - 64,000
2003		40,000 - 50,000		60,000 - 70,000
2004		45,000 - 55,000		65,000 - 75,000
2005		50,000 - 60,000		70,000 - 80,000
2006		50,000 - 60,000		75,000 - 85,000
2007 and after		50,000 - 60,000		80,000 - 100,000

Contribution linkage between spouse retirement plans greatly relaxed

Previously, if spouse was covered by a retirement plan at work, your ability to contribute to a deductible IRA was reduced if your AGI was above $40,000

Starting in 1998 you can contribute to your own fully deductible amount if your joint AGI is below $150,000

$2,000 per year contribution limit will be indexed for inflation after 1998

Amount will increase in $50 increments if sufficient inflation

Wavier of withdrawal penalties in more cases

You always will face ordinary income tax on distributions from a deductible (non-Roth) IRA

However, you previously you did not face a 10 percent penalty tax if you withdrew money from your IRA in the following cases

After reaching age 59.5

Death or disability of the owner of the IRA

As part of an annuity program

For medical expenses that exceed 7.5 percent of AGI

For purchasing medical insurance after receiving unemployment compensation for 12 weeks

The new law adds the following exceptions to the 10 percent penalty tax starting in 1998

To pay for qualified higher education expenses for you

Withdrawal of up to $10,000 for a first-time purchase of a home

Elimination of "success tax"

Previously, retirement plan or IRA distributions that exceeded $160,000 per year faced a 15 percent excise tax, and "excess retirement plan accumulations" in plans faced an additional 15 percent death tax

Changes to the tax code in 1996 provided a temporary suspension of the 15 percent excess distribution tax

The 1997 tax act repeals the excess distribution tax and the 15 percent excess retirement plan accumulation estate tax, effective Dec. 31, 1996