c7

m - Congressional Research Service 4

r) The Library of Congress * *

INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) IP0177I

Recent changes in the Nation's tax laws have made Individual Retirement Accounts available to many people previously excluded. Enclosed is general information on IRAs including material ex- plaining these recent changes and their consequences.

Additional information on this subject, primarily in period- icals and newsDaDers. mav be found in a local library through the

L A , <

use of indexes such as the Readers' Guide to periodical Literature, Public Affairs Information Service Bulletin (PAIS), and the New York Times Index.

We hope this information will be helpful.

Congressional Reference Division

COMPLIMENTS O F

Gene Snyder

97

th C

ongr

ess

1st

sess

ion

}

CO

MM

ITT

EE

PR

INT

A.

GU

IDE

TO

IN

DIV

IDU

AL

RE

TIR

,EM

EN

T

AC

CO

UN

TS

(I

RA

'S)

AN

IN

FO

RM

AT

ION

PA

PE

R

PREPARED BY T

HE S

TA

FF

OF

THE

SP

EC

IAL

CO

MM

ITT

EE

ON

AG

ING

. U

NIT

ED

ST

AT

ES

SE

NA

TE

DE

CE

MB

ER

19

81

Th

is d

ocu

men

t h

as b

een

pri

nte

d f

or i

nfo

rmat

ion

pu

rpos

es.

It d

oes

not

of

fer

fln

din

gs o

r re

com

men

dat

ion

s by

th

is c

omm

itte

e

11 S

GO

VIC

RN

ME

NT

P

RIN

TIN

G O

BF

ICI<

:

Xi

Wi 0

WA

SII

INQ

TO

N

19

91

Qur

siic

,:i.

15 t

hcrc

: lo

ii.er

or

uppe

r in

com

e li

mit

for

IR

AZ

elig

ibil

ity?

i1

ns\v

w. S

o.

(ju

~st

lon

. Is t

here

11 li

rn~

t on t

he t

mo

un

t of

tim

e 11

pe

rzon

mus

t w

ork

each

yew

to q

rlul

ify

for

tin I

JLI?

A

nsw

er. N

o.

Que

stio

n. A

re p

art-

tim

e w

orke

rs e

ligib

le?

Ans

wer

. Yes

. M

AK

ING

A

N I

RA

IX

VE

ST

ME

NT

Que

stio

n. D

o I

hav

e to

put

$2,

000

in m

y IR

A e

very

yea

r to

kee

p it

al

ive?

A

nsw

er.

No.

The

re i

s no

min

imum

con

trib

utio

n re

quir

emen

t.

()ue

stio

n. M

tiy I

stag

ger m

y in

vest

men

t ove

r th

e ye

nr?

Ans

wer

. Y

es.

Or

the

enti

re a

mou

nt m

ay b

e in

vest

ed n

t on

e ti

me.

C

ontr

ibut

ions

13

nn I

R.1

mus

t be

in

the

form

of

cash

, che

ck, o

r m

oney

or

der.

O

uest

ion.

Wha

t is

the

cut

off

date

for

con

trib

utio

ns t

o th

e IR

A e

ach

year

? A

nsw

er. C

ontr

ibut

ions

may

be

mpd

e th

roug

h th

e du

e d

ate

for

your

in

com

e ta

x ~

etu

rn, in

clut

ling

exte

nsi

on

s. F

or m

ost

peop

le t

hat

dat

e is

.I

pril

15

of

the

yew

fol

low

ing

the

yeru

whe

n th

e in

com

e w

as e

arne

d.

(jue

stio

n. T

he

n is

the

last

dat

e ea

ch y

enr w

hen

I m

ay s

et u

p an

IR

A?

Aln

h\ve

r. T

he

due

date

for

fili

ng y

our

tax

retu

rn,

wit

h ex

tens

ions

. (J

uest

ion.

Whe

re m

ny I

RA

mon

ey b

e in

vest

ed?

Ans

wer

. IR

A m

oney

mtty

be

inve

stec

l in

suc

h th

ings

as

pass

book

sa

ving

s nc

coun

ts,

cert

ific

ates

of

da o

slt,

annu

itie

s,

mut

ual

fund

s (i

nclu

ding

mon

ey m

arke

t fu

nds)

, i;P

riY

idur

l st

ocks

and

bon

ds,

find

ce

rtai

n ki

nds

of

red

est

'ate

, su

ch a

s lm

tnite

tl re

al e

stat

e in

vest

men

t. pa

rtne

rshi

ps.

Que

stio

n. A

re a

ny in

vest

men

ts f

orbi

dden

? A

nsw

er.

Yes

. A

sset

s us

ed

to a

cqui

re a

col

lect

ible

are

tre

ated

as

imm

edia

te d

istr

ibut

ions

fro

m t

he a

ccou

nt a

nd a

re t

axed

acc

ordi

ngly

. T

hey

may

als

o be

sub

ject

to p

enal

ties

for

pre

mat

ure

dist

ribu

tion

. C

ol-

lect

ible

s in

clud

e w

orks

of

art,

nnt

ique

s, m

etal

s, s

tam

ps,

coin

s, a

nd

alco

holic

bev

erag

es.

Mon

ey i

nves

ted

in l

ife

insu

ranc

e co

ntra

cts

gen-

er

ally

doc

s no

t qua

lify

for

an I

KA

con

trib

utio

n. (

Ann

uiti

es d

o qu

alif

y.)

Que

stio

n. I

s th

ere

any

lim

it o

n th

e nu

mbe

r of

IR

A'S

ap

erso

n m

ay

have

? A

nsw

er. N

o. B

ut o

nly

a co

mbi

ned

tota

l of

no m

ore

than

100

per

cent

of

co

mpe

nsat

ion

or $

2,00

0, w

hich

ever

is

less

, m

ay b

e in

vest

ed e

ach

year

, no

mat

ter

how

man

y IR

A'S

are

set

up.

Q

uest

ion.

Is

ther

e a

pena

lty

for

putt

ing

mor

e th

an t

he

dedu

ctib

le

lim

it i

nto

an I

RA

in a

ny o

ne y

ear?

A

nsw

er.

Yes

. A

n ex

cise

tax

of

6 pe

rcen

t is

lev

ied

on a

ny a

mou

nt

cont

ribu

ted

beyo

nd

the

dedu

ctib

le a

mou

nt-u

nles

s th

e ex

cess

and

an

y ea

rnin

gs o

n th

e ex

cess

are

tak

en o

ut b

efor

e th

e du

e d

ate

for

filin

g an

inco

me

tax

retu

rn f

or t

he y

ear.

IJue

stio

n. iM

:ly I

mov

e m

y I

RA

wco

uut!

A

nsw

er.

Yes

, yo

u m

ay w

itht

lr~

tw pa

rt o

r d

l of

th

e as

sets

fro

m o

ne

IR.2

and

inv

est t

hem

in

anot

her

IR*

i, t

ax f

ree.

Thl

s is

kno

wn

as r

t "r

ollo

ver.

" Q

uest

ion.

Whe

n m

ust

this

inv

estm

ent

be m

ade?

A

nsw

er.

Ry

the

60t

h da

y af

ter

the

day

you

rec

eive

th

e m

oney

fr

om y

our

IRA

. Q

uest

ion.

How

oft

en m

ay I

do

this

? A

nsw

er.

You

mus

t w

ait

at le

nst

12 m

onth

s be

twee

n ro

llove

rs.

Que

stio

n. I

s th

ere

any

way

I m

ay m

ove

my

IR

A f

rom

one

ins

titu

- ti

on t

o an

othe

r m

ore

than

onc

e a

year

? A

nsw

er.

Yes

. If

the

mon

ey d

oes

not

pass

thr

ough

you

r ha

nds

bu

t is

han

dled

exc

lusi

vely

by

the

inst

itut

ions

inv

olve

d, t

he t

rans

acti

on i

s no

t co

nsid

ered

u "

rollo

ver"

an

d th

e 1-

year

wai

tling

per

iod

does

not

ap

ply.

A

GE

~M

IT

S

AN

D W

ITH

DR

AW

AL

S

(jue

stio

n. A

t w

hut

age

may

I o

pen

nn I

RA

? A

nsw

er.

The

re is

no

min

imun

i tg

e. Y

ou m

ay n

ot,

how

ever

, de

duct

pa

ymen

ts y

ou m

ake

to a

n I

RA

if y

ou w

ill b

e 70

): be

fore

the

end

of

the

year

. (S

uest

ion.

Whe

n m

ay I

wit

hdra

w m

oney

fro

m m

y I

RA

? A

nsw

e~. N

orm

ally

, yo

u m

ny s

tart

to

wit

hdra

w y

our

mon

ey a

t ag

e 59

%. (

Ear

ly w

ikhd

mw

als

are

perm

itte

d up

on d

isab

ilit

y or

dea

th.)

(S

uest

ion.

Mus

t m

y m

oney

be

wit

hd

~aw

n by

a c

erta

in a

ge?

Ans

wer

. Y

ou m

ust

begi

n to

rec

eive

pay

men

ts f

rom

you

r ac

coun

t be

fore

the

end

of

the

yenr

in

whi

ch y

ou b

ecom

e 70

)& w

heth

er y

ou

are

reti

red

or n

ot.

You

may

not

inv

est

any

mon

ey a

fter

you

rea

ch

70);.

The

re is

a h

eavy

en

alty

for

fai

ling

to m

ake

prop

er d

istr

ibut

ion

of

the

mon

ey.

Wor

k c

osel

y on

thi

s w

ith

the

inst

itut

ion

whe

re y

our

IRA

is s

et u

p.

Y Q

uest

ion.

How

is th

e m

oney

in m

y IR

A p

aid

out t

o m

e?

Ans

wer

. T

he

mon

ey c

an b

e pa

id o

ut in

var

ious

way

s. Y

ou m

ay ta

ke

the

enti

re a

mou

nt i

n a

sin

gle

paym

ent

betw

een 59;h a

nd t

he e

nd o

f th

e ye

ar d

urin

g w

hich

you

rea

ch 7

05.

Or

you

may

ele

ct t

o re

ceiv

e th

e m

oney

in

regu

lar

paym

ents

ove

r a

fixe

d pe

riod

of

tim

e th

at is

no

t gr

eate

r th

an t

he l

ife

expe

ctan

cy o

r th

e co

mbi

ned

life

expe

ctan

cy o

f yo

u an

d yo

ur s

pous

e. O

r yo

u m

ay c

hoos

e an

ann

uity

th

at w

ould

m

ake

regu

lar

paym

ents

for

lif

e or

the

com

bine

d liv

es o

f yo

u an

d yo

ur s

pous

e. P

aym

ents

mus

t be

gin

by

the

end

of

the

tax

year

dur

ing

whi

ch y

ou b

ecom

e 70

:i.

Que

stio

n. D

o I

pay

any

taxe

s on

the

mon

ey I

pu

t in

to a

n IR

A e

ach

year

? A

nsw

er.

No.

Th

at a

mou

nt-t

he

less

er o

f $2

,000

or

100

perc

ent

of

taxa

ble

com

pens

atio

n fo

r th

e ye

ar-i

s ta

ken

off

the

top

of

your

in

com

e an

d is

not

taxe

d un

til i

t is

dist

ribu

ted

to y

ou.

Que

stio

n. I

s in

tere

st o

r ot

her

mon

ey e

arne

d by

my

IRA

taxe

d ea

ch

year

? A

nsw

er.

Mon

ey i

s no

t ta

xed

as i

t ac

cum

ulat

es i

n lo

ur

acco

unt.

T

here

may

be

a fe

w s

peci

al e

xcep

tion

s to

this

. Q

uest

ion.

Whe

n is

my

IRA

taxe

d?

Ans

wer

. W

hen

you

wit

hdra

w m

oney

fro

m y

our

IRA

, it

is

taxe

d as

or

dina

ry in

com

e, u

nles

s yo

u "r

oll

it o

ver,

" ta

x fr

ee, a

s de

scri

bed

abov

e.

The

re is

a t

ax p

enal

ty if

you

wit

hdra

w m

oney

bef

ore

you

are

age

59':.

A p

enal

ty-f

ree

wit

hdra

wal

ca

n be

m

ade

upon

dis

abil

ity

or d

eath

. Q

uest

ion.

Wha

t is

the

pen

alty

for

wit

hdra

win

g m

y m

oney

ear

ly?

Ans

wer

. T

he a

mou

nt w

ithd

raw

n w

ill b

e ta

xed

as o

rdin

ary

inco

me

and

a 10

er

cent

adt

liti

onel

tax

will

be

char

ged

on t

he a

mou

nt w

ith-

dr

awn.

T Fl

e ad

diti

onal

tax

is

nond

educ

tibl

e. T

his

pena

lty

does

not

ap

ply

to a

n ea

rly

wit

hdra

wd

that

is 'L

roll

etl o

ver,

" ta

x-fr

ee.

Que

stio

n.

Doe

s m

y IR

A b

ecom

e pa

rt o

f m

y es

tate

aft

er I

die?

A

nsw

er. T

he re

mai

ning

am

ount

in y

ollr

IR

A is

not

sub

ject

to

Fed

eral

es

tate

tax

es i

f it

is p

aid

to y

our

bene

fici

ary

duri

ng h

is o

r he

r li

feti

me

or

duri

ng a

per

iod

of

at l

east

36

mon

ths.

IT

owev

er,

a lu

mp-

sum

ay

men

t to

you

r be

nefi

ciar

y is

inc

lude

d as

par

t of

your

est

ate

for

gede

ral t

ax p

urpo

ses.

Q

uest

ion.

How

abo

ut g

ift t

axes

? A

nsw

er.

A d

istr

ibut

ion

paya

ble

to a

ben

efic

iary

will

no

t be

sub

ject

to

Fed

eral

gif

t tax

es.

Que

stio

n. W

here

can

I g

et m

ore

info

rmat

ion

on I

RA

'S?

Ans

wer

. N

o m

atte

r w

here

you

liv

e th

ere

will

be

a ta

x in

form

atio

n b

nu

mbe

r in

ou

r te

leph

one

book

. L

ook

for

it u

nder

Uni

ted

Sta

tes

Gov

- er

nmen

t, T

nter

nal

Rev

enue

Ser

vice

. C

all

that

num

ber

and

ask

for

Pub

lica

tion

59

0,

Tax

In

form

atio

n on

In

divi

dual

R

etir

emen

t A

rran

gem

ents

.

Wha

t can

an

IRA

do

for y

ou?

Tak

e th

is e

xam

ple,

dev

elop

ed b

y a

fina

ncia

l org

aniz

atio

n:

You

are

~er

mit

ted

a m

axim

um i

nves

tmen

t of

$2

,000

a y

ear

in a

n IR

A.

Aft

er 2

0 ye

ars,

you

wou

ld h

ave

$161

,397

if y

ou i

nves

ted

all

$2,0

00

on J

anua

ry 1

eve

ry y

ear

at 1

2 pe

rcen

t si

mpl

e in

tere

st,

com

poun

ded

over

20

year

s.

Aft

er 4

0 ye

ars,

the

sam

e in

vest

men

t w

ould

pro

duce

$1,

718,

285

and

wou

ld m

ake

you'

a m

illi

onai

re.

Bu

t le

t's k

ee

thin

gs i

n pe

rspe

ctiv

e.

You

wou

ld s

till

hav

e a

real

P

nest

egg

. B

ut

al o

win

g, s

ay, f

or i

nfla

tion

of 5

per

cent

a y

ear,

40

year

s fr

om n

ow $

1,71

8,28

5 w

ould

buy

goo

ds w

orth

app

roxi

mat

ely

$244

,110

in

198

1 do

llar

s.

IRA

OP

TIO

NS

The

sim

ples

t w

ay

to i

nves

t yo

ur I

RA

dol

lars

is

in

a pa

ssbo

ok

savi

ngs

acco

unt.

B

ut,

fina

ncia

l in

stit

utio

ns a

re a

lso

offe

ring

oth

er I

RA

inv

estm

ents

w

ith

high

er r

etur

ns th

&n t

he p

assb

ook

yavi

ngs

rate

.

Ban

ks,

cred

it

unio

ns,

savi

ngs

and

loan

as

soci

atio

ns,

insu

ranc

e co

mpa

nies

, mut

ual f

unds

, an

d In

vest

men

t br

oker

s al

l ar

e co

urti

ng t

he

IRA

cus

tom

er.

Her

e is

a r

undo

wn

on o

ptio

ns p

riva

te f

inan

cial

ins

titu

tion

s ar

e m

akin

g av

aila

ble.

B

AN

KS

Ban

ks a

re o

ffer

ing

a va

riet

y of

opt

ions

on

IRA

'S t

hat

are

pat

tern

ed

afte

r co

nven

tion

al c

erti

fica

tes

of

depo

slt

bu

t ar

e fa

r m

ore

flex

ible

. E

ven

wit

hin

the

sam

e ba

nk m

ore

than

one

opt

ion

may

be

avai

labl

e.

Con

vent

iona

l cer

tifi

cate

s of

dep

osit

req

uire

siz

able

init

ial

paym

ents

. B

ut

an I

RA

acc

ount

can

be

open

ed w

ith

a m

odes

t am

ount

, per

haps

$1

00.

Aft

er t

hat

you

can

de

osit

as

muc

h as y

ou l

ike,

whe

neve

r yo

u li

ke, d

epen

chng

on

the

lega

l em

it p

er y

ear.

You

can

eve

n st

op p

ayin

g an

d yo

ur

acco

unt

wlll

re

mai

n ac

tive

. G

ener

ally

sp

eaki

ng,

bank

s w

on't

char

ge m

aint

enan

ce c

osts

. T

he

diff

eren

t op

tion

s in

IR

A'S

will

rev

olve

aro

und

the

kind

of

in

tere

st b

eing

off

ered

, th

e am

ount

of

inte

rest

, an

d th

e le

ngth

of

tim

e of

the

cert

ific

hte.

S

ome

IRA

'S w

ill h

ave

vari

able

, or

flo

atin

g, i

nter

est

rate

s. O

ther

s w

ill h

ave

fixe

d in

tere

st r

ntes

. -

Bot

h ra

tes

gene

rall

y w

ill

t,ake

as

thei

r gu

ide

the

rate

s of

U

S.

Gov

ernm

ent

secu

riti

es a

nd o

ther

inv

estm

ents

. T

his

does

no

t m

ean

the

IRA

nec

essa

rily

will

be

ayin

g th

e sa

me

amou

nt a

s th

e se

curi

ties

. It

cou

ld b

e pa

ying

mor

e. &

it

the

vari

able

, or

flo

atin

g, m

te,

on t

he

IRA

wou

ltl f

luct

uate

alo

ng w

ith

the

secu

rity

's f

luct

uati

ons.

Int

eres

t on

ou

r ac

coun

t wou

ld b

e ad

'ust

etl

regu

larl

y.

+he

fixe

d ra

te r

ill

stay

t I

e sa

me

thro

ugho

ut t

he t

imes

pan

of

the

cert

ific

ate,

whe

n ne

w t

erm

s w

ould

be

set.

A

lt,ho

u h

IRA

cer

tifi

cate

s w

ill h

ave

tim

e li

mit

s of

at l

east

18

mon

ths,

so

me

ban k s

will

ren

ew I

RA

1s w

ith

vari

able

inte

rest

rat

es a

utom

atic

ally

if

the

cust

omer

wis

hes.

Y

our

IRA

ro

babl

y w

on't

have

the

sam

e in

tere

st r

ate

thro

ugho

ut

its

life

tim

e. W

Y, en y

our

cert

ific

ate

mat

ures

you

can

mov

e yo

ur a

ccou

nt

else

whe

re i

f yo

u ar

e di

ssat

isfi

ed w

ith

the

new

ter

ms

prop

osed

. B

ut

the

bank

may

cha

rge

a pe

nalt

y if

you

mov

e th

e m

oney

bef

ore

the

cert

ific

ate'

s m

atur

ity.

A

'cco

unts

in

the

vas

t m

ajor

ity

of co

mm

erci

al a

nd m

utua

l sa

ving

s ba

nks

are

fede

rall

y in

sure

d up

to

$100

,000

. Oth

ers

are

not,

bu

t th

ey

may

be

insu

red

unde

r you

r hom

e S

tate

.

Alm

ost

all

cred

it u

nion

s w

ill b

e of

feri

ng I

RA

'S. T

hey

expe

ct t

o pa

y in

tere

st th

at is

com

peti

tive

wit

h ot

her f

inan

cial

inst

itut

ions

. C

redi

t un

ions

ar

e ch

arte

red

by

the

Fed

eral

G

ovei

nmen

t or

by

th

e S

tate

s.

Eve

ry F

eder

al c

redi

t un

ion

is f

ree

to d

ecid

e w

hat

kind

of

IRA

it

will

hav

e, i

nclu

tlin

th

e in

tere

st i

t w

ill p

a . S

tate

-cha

rter

ed c

redi

t

inte

rest

cei

lings

. e

:

unio

ns a

lso

will

tle

ve o

p th

eir

own

plan

s, a

lt o

ugh

som

e S

tate

s ha

ve

Cre

dit

unio

ns w

ill d

esig

n IR

A'S

key

ed t

o th

eir

size

an(

! nt

ltr~

re.

Inte

rest

will

be

set

by t

he b

oard

of

dire

ctor

s of

t,he

cred

lt

unio

n.

Som

e IR

A'S

will

hav

e no

tim

e li

mit

. O

ther

s m

tiy o

ffer

s~

~v

ing

s ce

rtif

i-

cate

s w

ith

a ti

me

lim

it t

int1

wou

ld c

hnrg

e ti

pen

nlty

for

pre

tnt~

tr~

re

wit

hdra

wal

.

Con

veni

ence

is

one

of th

e t~

sset

s of 1

1 cr

edit

uni

on,

nntl

man

un

ions

si

ll m

t~xi

rnia

e con

veni

ence

b

y o

ffer

ing

ptly

rol~

(let

L,"

f%

fol

thei

r IR

A's

. T

he

init

ial

tlepo

sit

requ

iret

l qe

neia

lly

n-o

dd

be

very

Ion

-, s

~c

h

11%

$25

or I

ehs.

For

tho

se n

ot

trtk

lng

titlv

clnt

nge

of

ptiy

roll

tled

\~ct

ion,

nd

tlit

iont

~l de

posi

ts g

ener

ally

cou

ltl b

e m

citle

at

my

,tim

e m

tl

in a

ny

amou

nt,

ns l

ong

cis t

hey

don'

t ex

ceed

the

leg

al l

imit

eac

h ye

ar.

Fo

r th

e m

ost p

nrt,

no

mth

ten

nn

ce fe

es w

ill b

e ch

nrge

rl.

Acc

ount

s in

F

eder

al

cred

it

unio

ns

are

fede

rall

y in

sure

d up

to

$1

00,0

00.

Som

e S

tate

-cha

rter

ed

inst

itut

ions

al

so

are

fede

rall

y in

- su

red.

Oth

ers

may

be

insu

red

by t

he S

tate

for

a c

ompa

rabl

e am

ount

.

SA

VIN

GS

A

ND

LO

AN

AS

SO

CIA

TIO

NS

Sav

ings

and

loa

n as

soci

atio

ns w

ill b

e of

feri

ng a

ran

ge o

f op

tion

s w

hich

ar

e va

riat

ions

of

conv

enti

onal

sa

ving

s ce

rtif

icat

es

that

ar

e ta

ilor

ed

espe

cial

ly

for

IRA

's.

Som

e sa

ving

s an

d lo

ans

will

of

fer

mor

e th

an o

ne o

ptio

n.

IRA

's a

t sa

ving

s an

d lo

ans

will

dif

fer i

n th

e ki

nd o

f in

tere

st o

ffer

ed,

in t

he r

ate

of i

nter

est,

ant

i in

the

leng

th o

f ti

me

the

savi

ngs

cert

ific

ate

runs

. In

tere

st r

ates

gen

eral

ly w

ill b

e pe

gged

to

th

e ra

tes

of

U.S

. G

ov-

ernm

ent

secu

riti

es

or

othe

r in

vest

men

ts.

Mos

t sa

ving

s an

d lo

an

asso

ciat

ions

will

cho

ose

an i

nter

est

rate

th

at t

he c

usto

mer

can

und

er-

stan

d ea

sily

, su

ch a

s th

e ra

tes

on G

over

nmen

t se

curi

ties

th

at a

re

publ

ishe

d re

gula

rly

in n

ewsp

aper

s.

Thi

s do

es n

ot m

ean

the

inte

rest

rat

e m

ust

be t

he

sam

e as

the

rat

e *

on t

he G

over

nmen

t se

curi

ty.

The

sav

ings

and

loa

n co

uld

be o

ffer

ing

high

er o

r lo

wer

int

eres

t.

Som

e IR

A'S

will

ha

ve

a va

riab

le,

or f

loat

ing,

int

eres

t ra

te t

hat

w

ill r

ise

or f

all

whe

n th

e ra

te c

hang

es o

n th

e se

curi

ty t

o w

hich

it

is

pegg

ed.

Adj

ustm

ents

in

the

inke

rest

rat

e w

ould

be

mad

e re

gula

rly.

O

ther

IR

A'S

will

hav

e fi

xed

inte

rest

rat

es t

hat

will

rem

ain

the

sam

e du

ring

the

tim

e pe

riod

of

thc

savi

ngs

cert

ific

ate,

whi

ch c

ould

be

for

18

mon

ths

or c

ould

run

for

sev

eral

yea

rs.

You

r IR

A p

lan

roba

bly

won

't ha

ve t

he

sam

e in

tere

st ra

te th

roug

h-

out

its

lifet

ime.

$he

n yo

ur s

avin

gs c

erti

fica

te m

atur

es y

ou a

re f

ree

to m

ove

your

IR

A e

lsew

here

if

you

are

not

satis

fied

wit

h th

e ne

w

term

s pr

opos

ed.

How

ever

, if

you

take

you

r m

oney

out

bef

ore

the

cert

ific

ate'

s m

atur

ity,

the

sav

ings

and

loa

n as

soci

atio

n m

ay c

harg

e a

pena

lty.

S

avin

gs a

nd l

oans

gen

eral

ly r

equi

re a

mod

est

depo

sit-

for

exam

ple,

as

low

as

$10-

whe

n yo

u op

en y

our

acco

unt.

Aft

er t

hat

you

m

ay

depo

sit

wha

t yo

u li

ke,

whe

n yo

u li

ke,

as l

ong

as y

ou d

on't

exce

ed

the

lega

l li

mit

eac

h ye

ar.

You

can

eve

n st

o pa

ying

and

you

r ac

- co

unt

will

rem

ain

acti

ve.

Mai

nten

ance

gen

era t' ly

will

be

free

. A

ccou

nts

in t

he

vast

maj

orit

y of

sav

in s

an

d lo

ans

are

fede

rall

y in

sure

d up

tu

$100

,000

. O

ther

s ar

e no

t, f

k~

t they

may

be

insu

red

unde

r yo

ur h

ome

Sta

te.

An

IRA

set

up

with

an

insu

ranc

e co

mpa

ny i

s an

ann

uity

. A

n an

nuit

y ua

rant

ees

you

an i

ncom

e as

lon

g as

you

liv

e. I

t is

th

e o

dy

IRA

t%

at ca

n pr

ovid

e th

is g

uara

ntee

.

Insu

~.a

nce c

omp?

nies

will

tel

l yo

u in

the

beg

inni

ng w

hat

the

fixe

d m

inim

um r

ate

of

inte

rest

will

be

on y

our

mon

ey t

hrou

gh t

he y

ears

. T

he

atlv

anta

ge i

s.th

t~t gu

nran

t'eet

l in

tere

st i

s no

t su

bjec

t to

mnr

ket

fluc

tuat

ions

. T

his

inte

rest

rat

e co

ultl

be s

pelle

tl ou

t in

sta

ges

in y

our

polic

y. F

or e

xam

ple,

the

gua

rant

eed

rate

cou

ld b

e re

lati

vely

hig

h in

th

e fi

rst o

r ear

ly y

ears

, and

the

n lo

wer

for s

ucce

edin

g ye

ars.

O

n pa

per,

the

gua

rant

eed

rate

of

insu

ranc

e co

mpa

nies

has

bee

n co

nsid

erab

ly lo

wer

in r

ecen

t ye

ars

than

rat

es o

ffer

ed b

y ot

her

fina

ncia

l in

stit

utio

ns.

In re

alit

,, i

nsur

ance

com

pani

es h

ave

been

pay

ing

inte

rest

!v

hich

is

mor

e th

an t

h e gu

aran

teed

rat

e an

t1 is

com

peti

tive

mth

oth

er

inst

itut

ions

. T

he o

nly

guar

ante

ed r

ate,

how

ever

, is

the

one

spe

lled

out

in t

he

polic

y.

IRA

's h

ave

flex

ible

re

miu

ms.

Thi

s m

eans

you

can

pu

t as

muc

h 1

as y

ou l

ike

in y

our

IR

at a

ny t

ime,

as

long

as

you

don'

t ex

ceed

t'h

e m

axim

um s

et b

la

w e

ach

year

. Y

ou c

an e

ven

stop

pay

ing

and

your

po

licy

stil

l \d

1 4 e

m f

orce

. So

me

com

pani

es w

ill a

ccep

t $5

0 or

les

s as

an

ope

ning

am

ount

,. So

me

com

pani

es

are

tail

orin

g po

licie

s es

peci

ally

fo

r IR

A'S

b

offe

ring

fix

ed i

nter

est

annu

itie

s th

at h

ave

no '

.fro

nt

load

s,"

whi

c ar

e sa

les

cost

's. Y

our

enti

re in

vedm

ent

will

be

earn

ing

mon

ey f

or y

ou.

Bu

t yo

u ca

n ex

pect

to

pay

siz

able

en

alti

es i

f yo

u w

ithd

raw

you

r m

oney

re

mat

urel

, p

arti

cula

rly

in t

e

earl

y ye

ars

of

the

polic

y. T

his

is c

a11e

rP'~

back

loaB

~

t: M

aint

.ena

nce f

ees

for

IRA

's w

ill r

un a

roun

d $2

0 or

$25

a y

ear.

Y

our

fixe

d an

nuit

y al

so g

uara

ntee

s a

rate

upo

n w

hich

pay

men

ts

t,o y

ou m

ill b

e ba

sed.

You

can

nev

er g

et le

ss, b

ut y

ou c

oultl

get

mor

e.

Som

e in

sura

nce

com

ani

es w

ill a

lso

on'e

r IR

A'S

t'h

at d

o n

ot

have

gu

aran

teed

int

eres

t.

T !I ey

are

cal

led

vari

able

ann

uiti

es.

Th

e va

lue

of

the

annu

ity

fluc

tuat

es,

tlepe

ntlin

g on

m

arke

t co

ndit:

ons.

T

hey

gene

rally

will

hav

e sa

les

cost

s.

Mon

ey i

n yo

ur a

nnui

ty w

ill n

ot b

e fe

dera

lly

insu

red,

bu

t S

tate

ag

enci

es

that

reg

ulat

e in

sura

nce

com

pani

es

emph

asiz

e sa

fety

an

d di

vers

it,y

in i

nves

tmen

ts.

Whe

n yo

u p

ut

your

mon

ey i

n a

mut

ual

funt

l yo

u ar

e bu

ying

sha

res

in a

poo

l of

mon

ey t

hat

is in

vest

ed i

n se

curi

ties

cho

sen

by p

rofe

ssio

nal

mon

ey m

ana

ers.

T

he

mos

t f am

ous

type

of

mut

ual

fund

is

the

mon

ey m

arke

t fu

nd,

whe

re m

oney

is

inve

sted

in

shor

t-te

rm s

ecur

itie

s an

d yo

ur r

ate

of

retu

rn v

arie

s da

ily.

O

ther

mut

ual

fund

s in

vest

in

stoc

ks a

nd b

onds

. E

very

mut

ual

funt

l is

mad

e up

of

a gr

oup

of s

ecur

ities

. T

here

are

hu

ndre

ds o

f m

utua

l fu

nds,

de

sign

ed

to

mee

t di

ffer

ent

obje

ctiv

es

oE

nves

tors

. M

ntua

l fu

nds

do n

ot

uara

ntee

a s

peci

fic

rate

of

retu

rn o

n yo

ur

inve

stm

ent.

Som

e fu

nds

"h ave

far

out

stri

pped

inc

reas

es i

n th

e C

on-

sum

er P

rice

Ind

ex.

Bu

t it

als

o is

pos

sibl

e to

los

e m

oney

in

a m

utua

l fu

nd i

nves

tmen

t.

Mut

ual

fund

s ar

e kn

own

as lo

ad a

nd n

o-lo

ad f

unds

. T

he

"loa

d,"

or

char

ge, i

s a

sale

s co

mm

issi

on p

aid

to a

bro

ker

or s

ales

age

nt f

or a

dvic

e an

d se

rvic

es.

The

sal

es c

harg

e us

uall

y is

aro

und

8.5

perc

ent

of

the

cost

of

ever

y pu

rcha

se o

f sh

ares

in

the

fund

.

Gen

eral

ly s

peak

ing,

sha

res

in n

o-lo

ad f

unds

are

not

pur

chas

ed f

rom

a

brok

er.

Mon

ey m

arke

t fu

nds,

whi

ch a

re n

o-lo

ad f

unds

, are

an

exce

p-

tion

to

this

. T

here

is

virt

uall

y no

dif

fere

nce

in t

he i

nves

tmen

ts o

f no

-loa

d an

d lo

ad f

unds

. Y

ou m

ust

be g

iven

a p

rosp

ectu

s sp

ellin

g ou

t the

obj

ectiv

es

and

term

s of

each

fun

d.

You

can

mov

e yo

ur I

RA

from

one

mut

ual

fund

to

anot

her

as y

our

own

inve

stm

ent

obje

ctiv

es c

hang

e. G

ener

ally

, th

ere

are

no c

harg

e w

hen

you

sell

fund

sha

res.

So

me

fund

s m

ay

requ

ire

that

you

in

vest

at

lea

st

a m

inim

um

amou

nt-p

erha

ps

$100

-eve

ry

time

you

buy

shar

es.

Oth

ers

requ

ire

no m

inim

um.

Eac

h ye

ar,

ther

e w

ill b

e a

man

agem

ent

fee

that

is

usua

lly a

roun

d 1

perc

ent

of th

e va

lue

of yo

ur s

hare

s. M

oney

mar

ket

fund

s ge

nera

lly

char

ge h

alf

this

am

ount

. M

any

fund

s al

so c

harg

e a

mai

nten

ance

fee

fo

r yo

ur I

RA

of

abou

t $1

0 a

ear.

x

Mut

ual

fund

s se

ek

to

ac i

eve

inve

stm

ent

grow

th,

safe

ty,

and

stab

ilit

y th

roug

h di

vers

ifie

d in

vest

men

t, b

ut y

ou

shou

ld

care

fully

ch

eck

the

sale

s pr

ospe

ctus

to

eval

uate

how

m~!

ch ri

sk i

s in

volv

ed.

In

a m

utua

l fu

nd, y

our

mon

ey 1

s no

t in

sure

d ag

a~n

st loss

due

to

norm

al

mar

ket

actio

n.

INV

E~

TM

EN

T

BR

OK

ER

S

Bro

kers

off

er t

he w

ides

t ra

nge

of I

RA

cho

ices

. F

or e

xam

ple,

bro

kers

at

inv

estm

ent

firm

s ca

n se

t up

IR

A'S

in

mut

ual

fund

s.

The

ca

n ar

rang

e to

put

you

r IR

A in

a l

imite

d pa

rtne

rshi

p bu

ilt

arou

n ‘f in

com

e-pr

oduc

ing

real

est

ate.

T

hey

can

help

you

sel

ect

an a

nnui

ty.

If yo

u w

ant

to m

anag

e yo

ur o

wn

inve

sim

ents

, th

ey c

an h

elp

you

arra

nge

for

a se

lf-d

irec

ted

indi

vidu

al r

et~

rem

ent tr

ust

that

will

qua

lify

as a

n IR

A.

Inve

stin

g in

sec

uriti

es,

how

ever

, ca

rrie

s th

e ri

sk

of lo

ss a

s w

ell

as g

ain.

Y

ou m

ay f

ind

that

som

e IR

A in

vest

men

ts m

ade

thro

ugh

a br

oker

w

ill h

ave

high

er c

osts

ass

ocia

ted

wit

h th

em t

han

othe

r IR

A'S

hav

e. A

br

oker

will

cha

rge

abou

t 8.

5 pe

rcen

t of

the

cost

of

ever

y pu

rcha

se o

f sh

ares

in a

mut

ual

fund

. E

ven

in a

sel

f-di

rect

ed I

RA

, you

will

pay

a

brok

er's

com

mis

sion

,whe

n yo

u bu

y or

sel

l st

ock.

The

fe a

lso

will

be

som

e co

sts

for

esta

blis

hing

the

pla

n an

d ad

min

iste

ring

it.

In

som

e ca

ses,

the

kin

d of

inv

estm

ent

you

sele

ct w

ill r

equi

re c

om-

mit

men

t to

a s

peci

fic

inve

stm

ent,

up t

o th

e li

mit

of.

the

IRA

. F

or

exam

ple,

you

cou

ld b

e re

quir

ed t

o in

vest

$2,

000

at o

ne tu

ne in

a li

mite

d re

al e

stat

e pa

rtne

rshi

p.

Inve

stm

ents

mad

e th

roug

h a

brok

erag

e fi

rm a

re n

ot in

sure

d ag

ains

t lo

ss d

ue to

nor

mal

mar

ket

acti

on. H

owev

er, c

lient

acc

ount

s ar

e in

sure

d up

to $

500,

000

agai

nst l

oss

due

to fa

ilure

of

the

firm

.

PO

INT

S T

O C

HE

CK

Als

o, f

ind

out

if yo

ur e

m l

oyer

has

agr

eed

to a

ay

roll

dedu

ctio

n an f

or I

RA

'S t

hat

is n

ot r

Jatt

ed to

a p

ensi

on p

lan.

!'he

m

one

wou

ld

inve

sted

by

a fi

nanc

ial i

nsti

tuti

on a

nd y

ou c

ould

sel

ect t

he IH

A you

w

ant.

The

ran

ge a

nd n

atur

e of

in

vest

men

t op

tion

s m

ight

be

grea

ter

than

if y

ou w

ent t

o th

e fi

nanc

ial i

nsti

tuti

on a

s an

indi

vidu

al.

Sti

ll, y

ou m

ay p

refe

r to

loca

te a

n IR

A o

n yo

ur o

wn.

B

e su

re t

o sh

op a

roun

d. A

sk t

o ta

lk t

o th

e IR

A s

peci

alis

t at

var

ious

fi

nanc

ial i

nsti

tuti

ons.

The

y al

l hav

e on

e.

Mak

e su

re t

he i

nsti

tuti

on h

as b

een

ap r

oved

for

IR

A'S

. B

anks

, sa

ving

s an

d lo

an a

ssoc

iatio

ns,

and

fede

ra 'i ly

ins

ured

cr

edit

un

ions

ar

e el

igib

le t

o ac

t as

tru

stee

s au

tom

atic

ally

. O

ther

ins

titu

tion

s m

ust

be c

ertif

ied

by t

he I

nter

nal

Rev

enue

Ser

vice

. Ask

the

ins

titu

tion

for

w

ritt

en p

roof

of

cert

ific

atio

n.

Con

side

r w

hat

you

wan

t an

IR

A to

do

for

you

and

ex.p

lore

in

thos

e te

rms.

Ass

ess

your

tem

pera

men

t, ag

e, a

nd r

etir

emen

t in

com

e ne

eds.

W

eigh

the

rela

tive

saf

ety

of y

our i

nves

tmen

t op

tions

. G

ener

ally

spe

ak-

ing,

the

clo

ser

you

are

to r

etir

emen

t, t

he m

ore

cons

erva

tive

you

r in

vest

men

t cho

ice

may

be?

par

ticu

larl

y if

you

will

be

de e

ndin

g he

av-

ily o

n IR

A d

olla

rs.

You

mig

ht a

lso

cons

ider

ope

ning

1~

11

~

in d

iffe

rent

fi

nanc

ial i

nsti

tuti

ons

to d

iver

sify

you

r ret

irem

ent i

nves

tmen

ts.

Mak

e ce

rtai

n to

get

the

dis

clos

ure

stat

emen

t req

uire

d by

law

. T

he

trus

tee

mus

t gi

ve y

ou a

n ex

plan

atio

n of

all

the

inco

me

tax

cons

e-

quen

ces

of o

peni

ng a

nd m

aint

aini

ng a

n IR

A a

ccou

nt.

If t

he r

ate

of r

etur

n on

the

IR

A is

gua

rant

eed

or c

an b

e re

ason

ably

pr

ojec

ted,

thi

s di

sclo

sure

sta

tem

ent m

ust

ive

you

a pr

ojec

tion

of t

he

grow

th o

f th

e pr

ogra

m a

t th

e en

d of

ea

t[ of

th

e fi

rst

5 ye

ars

of

the

cont

ract

and

at

age

60

,65

, and

70.

Am

ong

othe

r th

ings

, the

sta

tem

ent

also

mus

t giv

e st

artu

p an

d ad

min

istr

ativ

e co

sts.

If

the

inve

stm

ents

are

mad

e in

mut

ual f

unds

or

on t

he o

pen

mar

ket,

yo

u m

ust

inst

eed

be

info

rmed

of

wha

t sa

les

and

adm

inis

trat

ive

char

ges

will

be

mad

e ag

ains

t yo

ur

con

trib

~~

tio

ns an

d ho

w

annu

al

earn

ings

are

fi u

red.

A

sk a

bout

&e

min

imum

am

ount

req

uire

d by

an

inst

itut

ion

to o

pen

an IR

A.

Mak

e a

poin

t of

und

erst

andi

ng th

e ki

nd o

f in

tere

st, o

r ot

her

ret,

urn,

th

at is

bei

ng o

ffer

ed. A

sk h

ow i

nter

est w

ill b

e ca

lcul

ated

, too

. It m

akes

a

diff

eren

ce in

the

dolla

rs c

omin

g to

you

. In

tere

st r

ates

and

fee

s w

ill v

ary

from

ins

titu

tion

to

inst

itut

ion

and

from

loc

alit

y to

lo

cali

ty.

Und

erst

and,

al

so,

that

in

man

ca

ses,

in

tere

st r

ates

will

not

rem

ain

the

sam

e du

ring

the

life

of y

our

I&A

. K

eep

in m

ind

that

you

can

mov

e yo

ur I

RA

wit

hout

in(

urr

in

a ta

x pe

nalt

y, b

ut t

he in

stit

utio

n yo

u ar

e le

avin

g m

ay c

harg

e tl

pen

a ty

for

ea

rly

with

draw

al.

7 0

Whe

n it

com

es t

ime

to s

hop

for

your

IR

A,

rem

embe

r th

b:

It's

a

buye

r's m

arke

t. Fi

nanc

ial

inst

itut

ions

are

com

petin

g ag

gres

sive

ly f

or

your

mon

ey.

Fir

st o

f al

l, fin

d ou

t if

your

em

ploy

er is

acc

eptin

g de

duct

ible

, vol

un-

tary

IRA

-typ

e co

ntri

buti

ons

to a

pen

sion

pla

n.

Finance

New savings plans can help you prepare for retirement. But there are rules to follow and choices to make. Here's what you need to know.

Working hmericans who are willing to start socking away cash for retire- ment are now getting a big new help ing hand from Uncle Sam.

Effective January 1, tax breaks re- ward individuals who put up to $2,000 a year into a special savings plan- known as an individual retirement ac- count-to build a nest egg for the fu- ture. Money put into an IRA can be invested in any number of ways-from simply opening a savings account at a bank to trading in stocks and other se- curities. You can have a professional manage the money in your account or you can do it yoursel€.

As a result, a whirlwind of bidding is under way by firms seeking to handle the flood of investment money. Banks, savings m d loan BSSOCiations, mutual funds, credit unions, insurance compa- nies and stockbrokers are all offering IRA investment plans. Some compa- nies are setting up payrolldeduction plans for IRA contributions. Financial institutions are "fighting

tooth and nail" for this money, says William Donoghue, publisher of a news- letter on moneymarket mutual funds.

The American Bankers Association says more than 50 billion d o k s a year could flow into IRA programs, al- though much of this mon- ey will come from cash earmarked anyway for in- vestments and savings.

Tax Bendits What makes IRA'S at-

tractive are two big tax benefits-

The money that you contribute to an IRA is deductible from your in- come before calculating how much federal income tax you owe, even if you don't itemize any other deductions.

For example, a person who would otherwise have annual taxable in- come of $28,000 would

only have $26,000 after contributing $2,000 to an IRA. For a married couple filing a joint return, that reduction means a 1982 tax saving of $580. In effect, it costs this couple only $1,420 to make a $2,000 investment. The sav- ings are bigger for people in higher tax brackets, smaller for people in lower tax brackets.

m Interest and other earnings on the IRA investment, including capital gains, accumulate without being immediately taxed. That lets the value of your IRA snowball since the balance upon which you can earn investment income isn't reduced by a tax bite.

Who's Ellgible Until this year,IRA's had been limited

to people who weren't covered by an employer-sponsored retirement plan. Last year's big tax-reduction bill changed that. Starting in 1982, anyone who gets compensation from employ- ment, including fees for professional services or income from part-time work, can set up an IRA, even if also covered by an employer's retirement plan. An individual holding a job can put

up to $2,000 a year into an IRA. Open a separate account for a nonworking spouse who doesn't receive apy pay during the year, and you can put away a combined total of $235O-split in any ratio, but no more than $2,000 to either account. If you and your spouse both work, you can each invest up to

Here's what could happen to an individual retirement account in which $2,000 was it?-

vested each year-

A m Total *t;dn ~ e p o d t by Dollas Accumulated at mrted Age 65 8% Interest 12% Interest 30 $70,000 $393',853 $1 .lO6,452 35 $60,000 $256,456 $ 604,611 40 $50,000 $163,999 $ 326,754 45 $40,000 $101,778 $ 172,911 50 $30,000 $ 59.905 $ 87,732 55 $20,000 $ 31,726 $ 40,570 60 $10,000 $ 12,762 $ 14,458

$2,000. If you run a business, it may pay to hire your spouse part time to d o w both of you to have IRA's.

The main limit on IRA contributions is that you can't contribute more than what you receive in on-the-job com- pensation. That's of special interest to part-time workers. Nor can you make contributions if your only income is from interest, dividends or other non- employment sources.

As long as you don't exceed the year- ly ceiling on contributions, there is no limit to the number of individual IRA'S you can have. Moreover, you are not locked into an IRA. Within limits, you can close old IRA'S and open new ones, or sometimes switch the type of invest- ment within an IRA. The tax .rules don't require you to put money in ev- ery year, and the payments you make don't have to be in a lump sum. Some sellers of IRA investments, however, may require a minimum deposit.

Self-employed persons can set up IRA's, too, even if they also have IRA- like Keogh retirement plans.

Returns You Can Get The key to benefiting from an IRA is

to "start early and contribute consis- tently," says Gary Strum, a vice presi- dent at E. F. Hutton & Company, the investment firm.

For example, a person who is now 40 years old and pays in $2,000 a year to an IRA that earns 8 percent a year compounded quarterly would accumu-

Double the amounts for a working couple who contribute $4,000 a year. Note: Figures assume deposits made at start of p d , with interest compounded quarterly.

Vs. Inflation's Erosion Annual Rate of infhtion 6% 8%

1O0b 12% 14%

V.lw of Today's SlO0,OM) In 5 15 25

Years Y e a Years $74,726 $41,727 $23,300 $68,058 $31,524 $14,602 $62,092 $23,939 $ 9.230 $56,743 $18,270 $ 5.882 $51,937 $14,010 $ 3,779

late $164,000 by the time he or she reaches 65. If the IRA earns 12 percent a year, the balance will reach almost $327,000; start at age 30, and by age 65 you can have more than 1 million dol- lars stockpiled, even though your con- tributions totaled only $70,@. One New York S&L advertises: "Retire a millionaire for just $166.66 a month."

But don't let the gargantuan figures blind you. Behind the assumption that you can earn 12 percent a year, for instance, is an assumption that high in- flation will continue. If that is so, by the time you retire, 1 million dollars wori't be worth nearly as much as it is today.

In addition, an IRA only defers tax; it doesn't exempt you from it. When you start withdrawing funds, you will be taxed on all you take out--at regular income-tax rates. Moreover, no special favor will be given to IRA earnings from long-term capital W c h as the sale of stock held longer than a year. Capital gains will be taxed the same as other income, rather than at the lower rate that normally applies.

hievertheless, financial advisers say U ' s still shape up as a good buy. They also note that the tax bite may be eased at retirement when you presumably will be in a relatively low tax bracket because you won't be working.

In addition, advisers say that people should start IRA'S because Social Secu- rity and private pensions cannot be counted bn to provide all the cash needed for retirement.

Despite the hoopla, there's no need to fmh into an IRA. Though opening an IRA early this year will get you a fast start on earning tax-deferred in- come, you can wait until you He your 1982 tax return in 1983 to open an IRA or make a contribution to one, and still get a 1982 tax deduction.

Many people are likely to open ac- counts at banks or savings and loans, which have garnered the bulk of IRA'S in the past. One big drawing card: Fed- eral insurance for up to $100,000. After your IRA tops that amount, you can open more at other banks and SgcL's to stay fully insured.

IRA funds can be put into any bank or S&L account, but most heavily pro- moted are certificates of deposit specif- ically aimed at IRA funds. They have a maturity of 18 months or more and can pay any rate of interest an institution wants, though the rate is generally linkea to that paid on government and other money-market securities. Some banks in December were offering up to about 14 percent a year on such CD's. Many institutions offer a choice: A certificate with a fixed rate or one with a rate that varies with money- market yields. Credit unions also may offer special IRA savings certificates.

Mutual funds hope to pull in a large share of IRA accounts because of the flexibility and variety of investment that funds allow. Some investors are expected to start off with money-mar- ket funds, possibly switching later to funds investing in common stocks. Dreyfus Service Corporation, as one example, allows its IRA clients to switch without charge between six mu- tual funds it manages. Included are bond, stock and money-market funds.

Insurance firms offer several plans- including annuities that guarantee a minimum income level for life after you retire.

The greatest flexibility is offered by accounts you can manage yourself through a stockbroker. Merrill Lynch lists 19 investments open to its IRA clients, including stocks, bonds, U.S. se-

curities, mutual funds, options and realestate partnerships. Note: Depos- its to an IRA must be in cash. You can't contribute assets, such as stocks, you already own.

Also available for investment are spe- cial U.S. individual retirement bonds, available from Federal Reserve banks and the Treasury. They yield a relative- ly modest 9 percent a year.

Specifically prohibited for new IRA investments are gold, art, antiques, dia- monds, coins and other so-called col- lectibles. An alternative is to invest in- directly in such assets-shares in a gold-mining firm, for example. Experts suggest you stay away from

tax-exempt securities, such as municipal bonds. The reason: The interest on such securities are less than on other invest- ments and yet don't escape tax in an IRA-they are taxed when withdrawn.

More controversial is the question of investing in stocks. Some analysts look eskance at buying securities for long- term price appreciation because shares held in an IRA don't get favorable long-term capitai-gains treatment. In- stead, these analysts suggest buying stocks that pay big dividends, or high- yielding debt issues such as bonds and government securities, to benefit from the tax deferral in an IRA. Others, however, say that even though you give up capital-gains benefits, stocks may still be the best bet for long-term growth to outpace inflation.

Many employers are allcwing payroll deductions to IRA'S; this offers conve- nience and often lower costs. NCR Corporation in Dayton, Ohio, for one, gives employes a choice. They can fun- nel their money to NCR's credit union, a mutual fund that is managed by T. Rowe Price Associates, or a program run by Connecticut General Life Insur- ance Company for investing in long- term securities.

The new law also allows employers to accept IRA-style deposits to a firm's own pension plan, although that ap- proach appears to be less popular.

Wittrdrawals Though IRA'S are billed as a way to

save for retirement, your age rather than job status determines when you can withdraw money. You can take cash out without penalty, gradually or all at once, as early as age 59M, and the balance still accumulates tax deferred.

Unless you become disabled, with- drawals before 59% are subject to a tax penalty of 10 percent of the amount withdrawn, in addition to your being hit by income tax. The same age limits on withdrawals apply to a spouse for whom you've opened an IRA. There's no early withdrawal penalty if you die,

U.S.NEWS & WORLD REPORT. Jan. 1 1, 1982

in which case your IRA arisets can be passed on to heirs.

Note: You can't get around the early- withdrawal penalty by borrowing from an IRA or using its assets as collateral for a loan. Do that and you are subject to penalty and tax as if the amount were an early withdrawal.

Nevertheless, advisers say that peo- ple shouldn't let the withdrawal penal- ty scare them. That's because the tax breaks are so large that in some cases in future years you may come out ahead even if you must incur the penalty.

You must start withdrawing from an IRA after you reach 70%. At that point, the withdrawals must be at a rate fast enough to deplete the IRA over either your life expectancy or the joint expec tancy of you and your spouse. You can make contributions to an IRA up to the year in which you reach 70%.

But even people under 59% can take out IRA funds temporarily with- out incurring a penalty or tax. Once a year you can close an IRA and hold the funds for up to 60 days before rolling them over into a new account to avoid tax or the 10 percent penalty. You can use the funds as a short-term loan or invest them to get current income.

If you want to switch an IRA more than once a year, the institution hold- ing your account must transfer it to the hew institution, thus keeping the funds out of your hands and preventing you from bemg hit with tax or pedty. Note: ~hough you avoid tax penalties in such a transfer, you may run into extra charges levied by the institution in which you have your IRA-an early- withdrawal penalty on a savings certifi- cate or a redemption fee on an insur- ance annuity, for example.

The Cost When opening an IRA, there are of-

ten initial charges to pay, as well as nn annual fee, sometimes based on the value of the account. But the levies are generally snall. Banks and SBeL's usu- ally charge nothing to open an IRA and $10 or less a year to maintain it. Many mutual funds charge $5 to $10 to open an IRA and less than $10 a year to keep it up. Self-directed accounts at stock- brokers may cost up to about $30 to open, with a maintenance fee of about $25 or higher depending on the ac- count's size and ty+. You also @y commissims on the purchase of stocks and some mutual-fund shares and in- surance annuities. The best advice: Shop around, don't

be misled by fancy sales pitches and be wary of promises of high future yields that may not be met. C

By LEONARD WLENE?i

U S N E W S & WORLD REPORT, Jan 11. 1982

52 THE WALL STREET JOURNAL, Monday, December 14, 1981

Your MQney Matters Ire to put your ur IRA~Z~~YI 1 Lmk at Risks, Management and All the Fees I

By JILL B m m Bylf Rcponer uf I h u Was. SR~PCT JWWL

For mlltions of people, the question isn't whether to open an individual retirement ac- count (IRA) after Jan. 1, but where.

Financial institutions. brokerage .firms. credit unions. insurance companies and mu- tual fu$s are all competing for your busi- pess, as you have undoubtedly noticed from the barrage of advertising in recent weeks.

Whatever investment you choose, any amount that you contribute to your IRA will be tax-deductible, up to $2.000 a year, or a total of $2350 for yourself and a nonworking spouse. The earning can be left to accumu- late -free until you reach at least age 58%. Deciding h' to lnwst depends on the

risk you will accept in return for a possibly higher tax-free yield, whether you want to control your IRA yourself or have it profes- sionally managed. and how much you want to pay in assorted fees (see accompanying tabk) .

No matter where you put your IRA dol: tars. if you dip into the account before age 58%. yon will pay a penalty tax of lo?" on the amount withdrawn. And. the money you take out will be taxed as ordinary income.

For instance, if you accumulate $10.000 in an IRA and decide to take out $2,000 before you reach the magic age, you will pay a penalty tax of t200. The other 58,000 will re- main sheltered. If, however, the $10,000 w s invested In a bank certificate of deposit or an insurance annuity, you. could also pay

other penalties for getting at the money early.

Still, the tax penalties for early with- drawals from an IRA aren't prohibitive. Af- ter a few years, they can effectively be paid out of tax-free interest.

(Note: While annual contributions to the new universal IRA are a write-off on your federal tax return starting in 1982, many states, including New Jersey and California. haven't amended their laws to make the contributions deductible from state income taxes. Most state legislatures, however, are expected to act in time for claiming the full deductions for 1982.)'

~ n y fees for setting up or maintaining an IRA are m deductible fmm federal taxes. whether you choose to pay them out of Your annual contributions or separately. Here is a sample of the types of investments available from various institutions:

Banks. Thrift ~ t i o n s and Credlt Unions. The options include certificates of deposit with a choice of maturities, as well as regular passbook savings accounts. Their fees are the lowest,'and IRAs are federally insured, up to $100,000.

New are 18-month certificates, permitted only for IRA5 and Keoghs, which are retire- ment plans for the self-employed. These "wild-card CDs can carry any interest rate that a financial institution chooses to pay. Most banks and savings and loans are cur- rently advertising rates of between 14% and 15% on either fixed- or variablerate 18- month certificates. Minimum deposits can be as low as $1. Credit unions can vary the terin. as well as the rate, on any certificate they decide to offer.

.If you have an existing IRA or'~eogh, and you are stuck with an old, low-interest savings certificate that hasn't matured, you can avoid an early-withdrawal penalty and still start earning more on contributions tw ward your rehrement savings from now on.

A financial institution can assess an ear- ly-withdrawal penalty, which requires you to forfeit at least the last six months' intergt. only Lf you invade the certificate's principal. But you can withdraw the accumulated in- terest without penalty any time. (The same $ true of any kind of savings certificate.)

Use the interest you have piled up to open a higher-paw IRA or Keogh, and di- rect that the future Interest on your old ce r tificate also be paid to the new plan. It is called "bleeding" an account, and although banks hate people who do it, few of them charge any fee for such automatic Interest transfers.

Brokerage FLrms. The big brokerage houses offer the most variety of invest- ments, although you will pay more in fees for your IRA than you will at financial insti- tutions. And brokerage retirement accounts aren't covered by federa! deposit Wrance.

Basically, there are two ways to @.'A self-directed IRA lets you buy and sell stocks and bonds as you like, or control in- vestments in such things as real estate, oil and gas or equipment leasing. At Paine Webber Jackson & Curtis Inc., investors can buy mortgage securities insured by the Gov- ernment National Mortgage Association (Ginnie Mae). The fees, which are typical of those the firm charges for all of its self-di- rected accounts. are 525 to open an IRA. brokerage commissions of $30 per $1.000 in- vested, plus a S25 annual maintenance, or custodial, fee.

Memll Lynch will charge $30 to open any kind of self-directed IRA, plus brokerage commissions. The annual mamtenance fee wll be the greater of $50, or two-tenths of 1% of the assets in the account as of Dec. 31 each year. Bache Halsey Stuart Shields Inc. will have fees of $25 and a minimum annual fee of $35. -

The lower-cat route at a brokerage firm is to invest in any of the professionally man- aged mutual-fund packages the firm sells. ?Lplcally, the packages include a money- market fund and several types of stock funds and bond funds. Also available are funds that combine stocks and options. There is usually a fee of about 8 to switch out of one fund and into another.

Merrili Lynch will charge $15 set up a mutual-fund account, plus an annual c u t e dial fee of $20. Dean Witter Reynolds Inc. will charge $20 and 520. respectively.

"No-bad" blutnal Fund "-a-

Firms like the Fidelity Group. the DreyruS Service Corporation. T. Rowe Price and the Vanguard Group offer IRA investors several professionally managed funds without sales charges.

At most companies there won't be a charge for setting up the account or for switching between funds. Annual manage ment fees typically will run $10 or less.

All of the big companies are also aggres- sively marketing theirfunds for payroll-de- duction mks. If your employer offers such a plan, participating in it could c a t you less than buying the funds direbuy.

Insurance Companies. The products are called Individual Retirement Annuities. Their biggest selling point is that they are guaranteed to provide a certain amount of income each year after yw retire. The pay- out, per $1.000 you invest, is based on aver- age life expectancies. as well as the value of the investments purchased with premiums.

There are two main types of i'nsurance IRAs. Prudential, for instance, will offer a "front-loaded" annuity that will carry a sales charge of 8.75% whch comes off the top of each 51.000 you put in over the years. Tie initial interest rate. which will be ad-. justed hnnually. will be 13.75%. The annual maintenance charge will be $8 on the first

payment, $1 on any subsequent payments. There won't be any penalties to withdraw part of your funds.

Prudential will also have a "back- loaded" annufty that will pay 13% to start. There aren't any sales charges on this type of contract. but there is a penalty of 770 if you withdraw any money in the first year. That penalty scales down gradually until it disappears entirely in the eleventh year. The annual maintenance fee is $25, starting in the second year.

Several Insrrrance companies will a& of- fer variablerate annuities that invest in mu- tual funds. Northwestern Mutual Life's plan will give buyers the choice of a money-mar- ket fund, stock fund or NML I, a fund that will move in and out of various investments "as market conditions warrant," a company spokesman says. This is another back- loaded plan. which will charge a penalty of 870 of principal for withdrawals made in the first fiye years. The annual matntenance fee is 530.

Reproduced by the Library of Congress, Congressional Research Service with permission of copyright ciairnant

wha

t to

look

for

in m

akin

g an

IRA

kitt

y B

y T

hom

as W

atte

rsoo

. B

usin

ess c

orre

spon

dent

of

The

Chr

istia

n Sc

ienc

e Mon

itor

Bos

ton

OK

, you

hav

e de

cide

d th

e ne

w in

divi

dual

ret

irem

ent

ac-

coun

ts (

IRA

) are

a go

od id

ea. T

hey

save

on

taxe

s. T

hey

can

offe

r a

firm

sav

ings

pro

gram

. Y

ou c

an n

ow p

ut a

side

up

to

$2.0

00 a

yea

r, e

ven

if yo

u ar

e al

read

y co

vere

d by

you

r co

m-

pany

's re

tire

men

t pro

gram

. B

ut w

here

shou

ld y

ou in

vest

you

r IR

A m

oney

? T

here

ar

e ba

nks,

sa

ving

s-an

d-lo

an

asso

dati

ons,

br

oker

age

hous

es, m

utua

l fun

ds, i

nsur

ance

com

pani

es,

and

cred

it un

ions

- a

ll p

uttin

g on

an

adve

rtis

ing

blitz

to p

ull i

n as

la

rge

a sh

are

of t

hese

acc

ount

s as

they

can

. M

uch

of th

e m

oney

goi

ng in

to IR

As

now

is p

roba

bly

"old

" m

oney

sim

ply

bein

g sh

ifte

d fr

om o

ne a

ccou

nt t

o an

othe

r. S

ome

is "

new

" sa

ving

s tha

t will

hel

p fi

ll fi

nanc

ial i

nstit

utio

n co

ffer

s.

The

acc

ompa

nyin

g ta

ble

show

s th

e si

x m

ain

fina

ncia

l In-

st

itutio

ns th

at a

re co

mpe

ting

for t

he 40

to 60

mill

ion

pote

ntia

l IR

A c

usto

mer

s. T

he l

iste

d pr

oduc

ts,

inte

rest

rat

es,

and

re-

stri

ctio

ns f

or e

ach

cate

gory

are

, of

nece

ssity

, ve

ry g

ener

al.

So, w

here

ver

you

shop

for

an

IRA

, her

e ar

e so

me

poss

ibly

us

eful

que

stio

ns:

* Wha

t is

the

int

eres

t ra

te?

How

is

it c

alcu

late

d? H

ow

ofte

n is

it c

ompo

unde

d? I

s th

e ra

te g

uara

ntee

d fo

r a s

peci

fic

leng

th of

tim

e?

Wha

t is

the

min

lmum

inl

tial

inve

stm

ent?

Wha

t is

the

min

imum

on

subs

eque

nt in

vest

men

ts?

Are

the

re c

harg

es to

ope

n th

e ac

coun

t? If

so,

is

this

a

flat

fee o

r is i

t a p

erce

ntag

e of

the d

epos

it?

0 C

an I

cont

ribu

te to

the

IRA

thro

ugh

payr

oll d

educ

tion?

0 A

re th

ere

any

annu

al ch

arge

s?

. 0 A

re t

here

any

cha

rges

to t

rans

fer

mon

ey f

rom

one

of

your

acc

ount

s to

ano

ther

acc

ount

, as f

rom

a m

oney

fun

d ac

- co

unt t

o a

bond

fund

? 0 W

hat a

re w

ithdr

awal

pen

altie

s if

vou

wan

t to

take

you

r m

oney

som

ewhe

re e!

se?

\

The

IRA

acco

unts

: who

has

wha

t?

Cer

tific

ates

: 1 a

rnon

th va

riabl

e la

mon

th fi

xed

30m

onth

var

iabl

e $y

ear

fixed

C

ertif

icat

es an

d pa

ssbo

dcs,

la

to

3(kn

onth

varia

ble

or fix

ed ra

tes

Mon

ey m

arke

t fun

d G

row

th st

ock

fund

B

ond

fund

In

com

e fun

d G

row

th s

tock

s Se

lfdire

cted

m

utua

l fun

ds

Shar

e ac

coun

ts

Flxe

d an

nultl

es,

mut

ual f

unds

Intw

d

mte

(1ss

z)

11 to

15

perc

ent

7to

14

perc

ent

11 to

15

perc

ent

Unk

now

n

rot0

14

perc

ent

1210

14

perc

ent

SlD

Oto

s1

,m

Non

e to

$5

00

Non

e to

s, 10

00

Non

e to

$l

,ooo

Non

e

$15 t

o 56

00

Non

e N

one

Non

e N

one

Non

e,

$3 to

us

ually

$1

5

5%to

N

one,

but

$25.

me

fro

nt

com

mis

sion

s lo

ad

Non

e N

one

Non

eto

None

8.75

%

pe

nd

th

6 m

onth

s in

tere

st

6 m

onth

s in

tere

st

Non

e

Non

e

Non

e, to

3

mon

ths'

inte

rest

P

/o, dr

ops

to n

one

Her

e are

a fe

w ad

ditio

nal p

oint

s to

cons

ider

: ad

s, fr

om 1

2 to

15 pe

rcen

t int

eres

t at m

atur

ity.

Y

our

firs

t in

vest

men

t de

cisi

on n

eed

not

be y

our

fina

l ,P

ut m

oney

Into

you

r IR

A a

ccou

nt a

s q&

kly

as yo

u ca

n.

one.

Man

y in

stitu

tions

hav

e lit

tle o

r no

cha

rge

for

tran

sfer

ri

ng o

r w

ithd

raw

ing

your

mon

ey.

The

law

per

mit

s yo

u to

.s

Nft

you

r IR

A a

ccou

nt o

nce

a ye

ar t

o an

othe

r in

vest

men

t ve

hicl

e. Y

ou m

ust m

ake

the

shif

t with

in 6

0 da

ys a

fter

with

- dr

awin

g fr

om th

e fi

rst I

RA

. Fe

dera

lly

insu

red

depo

sito

ry in

stitu

tions

, suc

h as

ban

ks,

savl

ngs-

and-

loan

s, a

nd c

redi

t un

ions

, pr

obab

ly o

ffer

the

sa

fest

IRA

veh

icle

s. p

arti

cula

rly

for p

eopl

e w

ho d

on't

wan

t to

to b

e. te

ndin

g th

eir

acco

unt.

The

18-

to 3

emon

th c

erti

fica

tes

offe

red

bv

ba

nk

~ an

d .W

Ls

are

~aW

j?. i~

c~ri

rdih

g to t

heir

If yo

u ca

n af

ford

it, p

ut th

e en

tire'

$2,0

00 in

now

and

and

sta

rt

colle

ctin

g in

tere

st i

mm

edia

tely

. T

he e

ffec

t of

com

poun

ding

-

espe

cial

ly if

it i

s don

e dai

ly - m

eans

the

soon

er th

e mon

ey

goes

into

the

IRA

. the

mor

e it

will

ear

n.

0 D

on't

get h

ung

up o

n th

e $2

,000

figu

re. M

any

peop

le a

re

sayi

ng. "

I ca

n't

affo

rd to

put

$2,

000

a ye

ar in

an

IRA

." T

hey

shou

ld p

ut in

wha

t the

y ra

n af

ford

. Eve

n if

it is

only

SO

0 (l

ess

than

$10

a week),

that

's $

500

that

is n

ot ta

xed

by U

ncle

Sam

th

is y

ear

and

will

pro

babl

y be

tax

ed a

t a

low

er r

ate

at

reti

rem

ent.

Taki

ng a

col

d, h

ard

. .

By

Fra

ncin

e Kie

fer

Bus

ines

s cor

resp

onde

nt of

T

he C

hris

tian

Scie

nce

Mon

itor

Bos

ton

Thin

k of

it, a

t age

65 y

ou c

ould

reti

re w

ith a

com

fy in

divi

d-

ual

reti

rem

ent

acco

unt - w

orth

a m

illio

n do

llars

. It

's r

ight

th

ere

in p

rint

. . .j

ust l

ike t

he a

ds sa

y. ,

The

ads

are

har

d to

mis

s. T

hey

are

put

out

by b

anks

ar

ross

the

coun

try.

and

man

y ru

n fu

ll-pa

ge in

dai

ly n

ewsp

a-

pers

. T

heir

sim

ple

mes

sage

is

this

: op

en a

n In

divi

dual

He-

ti

~em

ent A

ccou

nt. s

ave $

2,00

0 a

year

, ret

ire

on a

mill

ion.

Is

thi

s fo

r re

al?

Yes

and

no.

Mat

hem

atic

ally

. th

ese

mill

iona

re a

ds a

re a

ccur

ate.

If y

ou p

ump

the

max

imum

al-

lo

wed

!$2

.000

if y

ou're

sin

gle,

$4.

00 if

you

're m

arri

ed)

into

yo

ur I

RA

at

the

begi

nnin

g of

ever

y ye

ar,

it w

ill r

each

the

m

illio

n m

ark

in a

lmos

t 35

yea

rs.

The

ban

ks a

rriv

e at

this

gr

and

tota

l by

fig

urin

g a

112

perc

ent

rate

of

retu

rn,

com

- po

unde

d da

ily - a

rea

sona

ble

rate

in to

day'

s eco

nom

y.

But

wha

t if

that

12

perc

ent

rate

doe

sn't

stic

k ar

ound

for

th

e ne

xt 3

5 ye

ars?

And

will

$1

mill

ion

still

be

wor

th $

1 m

illio

n in

toda

y's

purc

hasi

ng p

ower

then

? A

nd h

ow e

asil

y ca

n pe

ople

look

at t

he m

illio

n-do

llar

IRA

pu

t $2,

00O

or $4

,000

asi

de b

y th

e be

ginn

ing

of e

very

yea

r?

Non

e of

the

ads

gua

rant

ee th

e 12

per

cent

ove

r th

e lif

e of

th

e IR

A. A

t Dry

Doc

k Sa

ving

s Ban

k in

New

Yor

k, w

hich

run

s fu

ll-pa

ge "

mill

iona

re"

ads

in t

he N

ew Y

ork

Tim

es.

Jose

ph

Lud

ovic

o sa

ys th

e ba

nk g

uara

ntee

s 12

per

cent

int

eres

t for

18

mon

ths.

Mr.

Lud

ovic

o, p

ensi

on s

ervi

ces

man

ager

for

the

ba

nk, s

ays t

he 1

2 pe

rcen

t rat

e w

orks

out

to n

earl

y 13

per

cent

be

caus

e of

the

dai

ly c

ompo

undi

ng.

"I f

eel u

ncom

fort

able

abo

ut th

e ad

s,"

says

Bar

net B

erin

, di

rect

or o

f pr

ogra

m s

tand

ards

at W

illia

m M

. Mer

cer

Inc.

, a

maj

or p

ensi

on e

mpl

oyer

ben

efit

firm

. Ber

in s

ays

12 p

erce

nt

is "v

ery

Mgh

" an

d ca

n't b

e co

unte

d on

to c

ontin

ue. "

Ove

r th

e lo

ng r

un, i

nter

est r

ates

hav

e be

en w

ell b

elow

12

perc

ent,"

he

adds

. It

wou

ld b

e m

uch

bett

er,

he s

ugge

sts,

"if

the

ads

show

ed w

hat w

ould

hap

pen

at lo

w, m

ediu

m, a

nd h

igh

rate

s."

Inte

rest

rat

es m

ake

a bi

g di

ffer

ence

in th

e en

d su

m. L

et's

sa

y th

e IR

A w

as fi

gure

d on

8 p

erce

nt i

nste

ad o

f 12

per

cent

. sa

me

rule

s stil

l app

lyin

g. W

hat m

ight

hav

e be

en a

nes

t egg

of

, $2

,131

.620

aft

er 40

yea

rs w

ould

com

e do

wn

to $

612.

380,

say

s M

icha

el R

yan,

pri

ncip

al a

nd a

ctua

ry a

t Tow

ers,

Per

rin,

For

- st

er &

Cro

sby,

anot

her p

ensi

on c

onsu

lting

firm

.

Ken

neth

McL

enna

n, a

n ec

onom

ist w

ith th

e C

omm

ittee

for

Eco

nom

ic D

evel

opm

ent,

says

the

"ret

ire

a m

illio

nare

" ca

m-

paig

n is

"a

little

opt

imis

tic."

He

adds

: "A

s th

e pr

ime

lend

ing

rate

beg

ins

to f

all

subs

tant

iall

y in

the

nex

t 5

year

s, b

anks

si

mpl

y w

ill n

ot m

ake

it [t

he $1

mill

ion

goal

l "

Of c

ours

e, it

's d

ebat

ahle

wht

lher

the

rate

s w

ill f

all a

s Mr.

Mac

Len

nan

pred

icts

. But

, he

says

, if

the

prim

e ra

te d

oesn

't fa

ll an

d st

ays

whe

re it

is (

arou

nd 1

5 pe

rcen

t), t

he 1

2 pe

rcen

t ra

te of

ret

urn

will

han

g on

. .

. and

so

will

hig

h in

flat

ion.

And

th

at m

eans

$1

mill

ion

will

not

be

wor

th $

I m

illio

n in

198

2 pu

rcha

sing

pow

er a

cou

ple d

ecad

es d

own

the

pike

. If

we

assu

med

a 1

0 pe

rcen

t rat

e of

inf

latio

n ov

er th

e ne

xt

25 y

ears

. $1

mill

ion

wou

ld b

e w

orth

$58

,820

in to

day'

s do

llars

. H

owev

er, "

this

cou

ntry

's d

emoc

racy

cou

ldn'

t las

t thr

ough

so

man

y ye

ars

of hi

gh in

flat

ion,

" M

erce

r's M

r R

rrin

sug

gest

s.

Mar

k C

lark

. a s

poke

sman

for

the

Uni

ted

Sta

tes L

eagu

e of

Sa

ving

s Ass

ocia

tions

. say

s tha

t wha

t the

"m

illio

nare

" ad

s do

is f

orce

peo

ple

to r

ecog

nize

tha

t "s

elf-

man

aged

ret

irem

ent

plan

s ca

n re

sult

in a

sig

nifi

cant

nes

t eg

g fo

r ev

eryo

ne.

It

show

s peo

ple

how

fas

t tax

-fre

e, c

ompo

unde

d in

tere

st c

an a

c-

cum

ulat

e.''

If yo

u're

in

the

50 p

erce

nt ta

x br

acke

t, M

r. C

lark

sa

ys, t

ax-f

ree

IRA

acc

umuh

tion

ove

r 35

year

s w

ill b

e ne

arly

10

tim

es m

ore

than

if it

wer

e ta

xed.

T

here

's s

till t

he q

uest

ion

of h

ow m

any

peop

le w

ill b

e ab

le

to p

ut a

side

that

max

imum

am

ount

for

thei

r IR

A e

very

yea

r.

Man

v ~

eoo

le will

be

ooen

ine

an IR

A in

add

ition

to th

eir

own

*.

. .

L,

empl

oyee

pen

sion

pla

n. B

arne

t Ber

in s

ays,

"pe

ople

und

er th

e so

cial

-sec

urity

wag

e ba

se 1

$32.4

001 w

ould

hav

e pr

oble

ms

sav-

in

g it.

" ~

ich

ae

l Rya

n th

inks

it

will

be

done

"by

peo

ple

. . .

who

se fa

mily

exp

ense

s (m

ortg

age,

car,

etc.

] hav

e su

bsid

ed."

D

ry D

ock'

s M

r. L

udov

ico

disa

gree

s. H

e em

phat

ical

ly

stat

es th

at "

peop

le w

antin

g to

car

ve a

nic

he f

or th

emse

lves

w

ill b

e ab

le to

do

it."

The

inc

entiv

e is

in t

he e

xtra

ordi

nary

ac

cum

ulat

ion

of in

tere

st. h

e ex

clai

ms.