The following changes are effective beginning in 1998. For more information on these and other changes to the tax law, get Publication 553, Highlights of 1998 Tax Changes.

Note. A traditional IRA is any IRA that is not a Roth, SIMPLE, or education IRA.

Deduction--spouse covered by employer plan. Beginning in 1998, if you are not covered by an employer retirement plan, you may be able to deduct all of your contributions to a traditional IRA, even if your spouse is covered by a plan. In this case, your deduction is limited to $2,000 and must be reduced if your modified adjusted gross income (AGI) on a joint return is more than $150,000. You cannot deduct any of your contributions if your modified AGI on a joint return is $160,000 or more.

See How Much Can I Deduct?, later.

Deduction--modified AGI limit increased. For 1998, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will not be reduced (phased out) unless your modified adjusted gross income (AGI) is between:

• $50,000 (a $10,000 increase) and $60,000 for a married couple or a qualifying widow(er) filing a joint return,
• $30,000 (a $5,000 increase) and $40,000 for a single individual or head of household, or
• $-0- (no increase) and $10,000 for a married individual filing a separate return.

See How Much Can I Deduct?, later.

No additional tax on early withdrawals for higher education expenses. Beginning in 1998, you can take distributions from your traditional IRA for qualified higher education expenses without having to pay the 10% additional tax on early withdrawals.

For more information, see Publication 590.

No additional tax on early withdrawals for first home. Beginning in 1998, you can take distributions of up to $10,000 from your traditional or Roth IRA to buy, build, or rebuild a first home without having to pay the 10% additional tax on early withdrawals.

Coins and bullion. Beginning in 1998, your IRA can invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. See What Acts Result in Penalties, later.

Roth IRA. Beginning in 1998, you may be able to establish and contribute to a new nondeductible tax-free individual retirement plan called the Roth IRA. Unlike certain contributions to a traditional IRA, you cannot claim a deduction for any contributions to a Roth IRA. But, if you satisfy the requirements, all earnings are tax-free and neither your nondeductible contributions nor any earnings on them are taxable when you withdraw them. See Roth IRAs, later.

Education individual retirement account (Education IRA). Beginning in 1998, you may be able to make nondeductible contributions of up to $500 annually to an education IRA for a child under age 18. Earnings in the IRA accumulate free of income tax. See Education IRAs, later.

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