New Options for Individual Retirement Planning

TRA '97 created many new opportunities for individuals to increase their retirement savings on a tax-favored basis. One such innovation is the Roth IRA, which has received tremendous coverage in the press. Individuals with a modified adjusted gross income ("AGI") of not more than $95,000 ($150,000 for married couples), may contribute up to $2,000 annually to a Roth IRA. The total amount which an individual may contribute to either a Roth or traditional IRA or both in any one tax year is $2,000. Contributions to a Roth IRA are not tax deductible, but withdrawals from a Roth IRA are not subject to federal income tax (a) if used for first time home purchases (up to $10,000), (b) if received after the individual has attained age 59Þ, (c) if the individual became disabled, or (d) if the individual died after at least five years since the first Roth IRA contribution. Individuals who currently participate in an employer sponsored retirement or savings plan and therefore are not eligible to make traditional deductible IRA contributions, may take advantage of the Roth IRA, provided they meet the AGI limit discussed above. In addition, Roth IRAs are not subject to the age 70þ minimum distribution rules.

Another potential benefit of the Roth IRA is the ability of an individual to convert an existing traditional IRA into a Roth IRA during any tax year in which his or her modified AGI is no more than $100,000. Generally, the conversion of a traditional IRA to a Roth IRA causes the amount converted to be included in the individual's taxable income in the year of the conversion. However, a special rule applies to conversions made in 1998 which permits the individual to spread the income tax liability stemming from the conversion over four years. The decision whether to convert a traditional IRA to a Roth IRA is based on many considerations including, but not limited to, the individual's age, current income, retirements benefits, marital status, health, and net worth. If you would like assistance in determining if a Roth IRA is a viable alternative for you, please contact a member of the Employee Benefits and Executive Compensation Group.