Saving for your retirement just got easier. Not only do you have a completely different option for an IRA account; limits on the amounts you may contribute have been raised and tax-free withdrawal options have been added.
The new law raises the income levels for taxpayers who want to deduct their contributions to an IRA but also have a pension plan in place. Over the next seven years, the income limits will double. For couples, the limits will increase by $10,000 in 1998, 2002, 2003 and 2004. Single filers will find their limits raised by $5,000 in the same years. In addition, both spouses will be able to deduct their account contributions as long as they do not exceed the top amount. Even if one spouse works and has a pension plan and the other stays home, both can contribute to their IRAs. Couples (even with one spouse who does not work outside the home) without a pension plan and an adjusted gross income (AGI) of less than $150,000 will be able to deduct contributions to an IRA.
Penalty-free withdrawals will be possible from IRAs, with the implementation of the new tax law, either to purchase a new home or for educational expenses. You will have to pay taxes on the money you withdraw, but no penalties will be incurred.
The new tax law brings good news for those of you with IRAs in place. For those of you without IRAs, there may never be a better time to start an IRA.