Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 2, 1990 TAG: 9003310008
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Medium
People can contribute to their accounts to be credited for two separate years. That means taxpayers have until the April 16 tax-filing deadline to make deposits for 1989; they can contribute toward 1990 as well.
So banks and thrifts are trotting out their best rates and featuring IRAs in their advertising.
The rates in the accompanying chart were being paid last week. Most are effective at least through today.
A few banks and thrifts pay slightly higher rates for larger amounts, typically $10,000, rolled over from other banks or S&Ls.
But you don't have to limit yourself to an IRA in a bank or thrift certificate of deposit.
Brokers offer a large array of investments, and insurance companies sell annuities that can be used for IRAs.
Robert Kulp, manager of the local office of A.G. Edwards & Sons, said people might consider U.S. Treasury notes paying 8.5 percent or Ginnie Maes paying more than 9 percent.
A lot depends on the individual, Kulp said.
People looking for absolute safety should consider Treasury notes or zero coupon bonds, he said.
Those who are willing to assume a little more risk for long-term growth, Kulp said, should considers individual stocks or mutual funds.
W. Jeffrey Roberts, manager of the Roanoke office of Branch Cabell, said people with small amounts of money should consider investing in a diversified mutual fund.
Mutual funds are cost-effective, he said, because the typical annual charge for administering an IRA account is $10.
His personal favorite is American Funds, a family of funds. Investors can switch their money among the various types within the group.
People can also invest small amounts of money on a routine basis.
Roberts said anyone who has accumulated a substantial amount, such as $10,000, might consider setting up a self-directed account.
People who follow that course invest in stocks and bonds on their own.
Roberts said that much money is needed to justify the costs of buying and selling investments. It also takes that much money to buy a variable annuity, Roberts said.
The earnings in an annuity are already tax-sheltered, but Roberts said many people like to have its life insurance death-benefit feature to protect the value of the principal.
Most people can still deduct IRA contributions up to the ceiling of $2,000 a year. Any lesser amount can be invested.
People who don't have a retirement plan at work for themselves or their spouses can deduct contributions regardless of income.
Even if you are covered by a plan, IRA contributions are fully deductible with adjusted gross income up to $40,000 for a couple or $25,000 for an individual.
Partial deductions are allowed for adjusted gross incomes between $40,000 and $50,000 a couple (or $25,000 and $35,000 for individuals).
But even those who cannot deduct their contribution can still take advantage of an IRA to shelter their gains until retirement.
KPMG Peat Marwick calculated in its March Taxletter that $2,000 in a taxable account earning 8 percent will grow to $3,000 in a decade.
Presuming a 28 percent tax bracket, an IRA will be worth $4,000 after the same 10 years.
The longer the time or the higher the interest rate, the greater the disparity.
Given another 10 years, Peat Marwick said, the difference between the two accounts would swell to $3,000.
IRAs are a long-term investment because there is a 10 percent penalty on withdrawals prior to the age of 59 1/2. People should have an emergency fund of ready cash before saving money in an IRA.
by CNB