Are you saving money towards your retirement? For many, setting up an individual retirement arrangement (IRA) can provide some peace of mind for retirement years.

IRAs are personal savings plans that offer you tax advantages to set aside money for your retirement or, in some plans, for certain education expenses. Being able to deduct your benefits may be an incentive to contribute to an IRA. Contributions to a traditional IRA,(an IRA that is not a Roth, SIMPLE, or education IRA) may be deductible and the earnings on the account are not taxed until withdrawn. Although withdrawals are generally taxable, retirees may pay a lower tax rate than when they were working.

For 1999, 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:

• $51,000 and $61,000 for a married couple or a qualifying widow(er) filing a joint return,
• $31,000 and $41,000 for a single individual or head of household, or
• $-0- and $10,000 for a married individual filing a separate return.

Anyone who has taxable compensation - such as wages, tips, commissions or taxable alimony - and who will be under age 70 1/2 at the end of the year, can set up a traditional IRA. Money can be put into an IRA any time during the year or by the due date of the tax return for that year, not including extensions.

In the case of a married couple filing a joint return, up to $2,000 can be contributed to IRAs (other than SIMPLE and education IRAs) on behalf of each spouse, even if one spouse has little or no compensation. This means that the total combined contributions that can be made on behalf of a married couple can be as much as $4,000 for the year. If neither spouse is covered by an employer retirement plan, the contributions to a traditional IRA are deductible on their tax return. If either spouse is covered by an employer's plan, the deductibility of IRA contributions depends on their joint income level.

Generally, individuals cannot make withdrawals before turning age 59 1/2 without being penalized. But the law allows penalty-free withdrawals for certain purposes, such as for higher education expenses and up to $10,000 for a first-time home purchase. Other penalty exceptions apply to amounts used for unreimbursed medical expenses that are more than 7 7.5 percent of adjusted gross income or for medical insurance for a taxpayer who receives unemployment compensation for at least 12 consecutive weeks.

The Roth IRA features nondeductible contributions. Distributions from a Roth IRA are tax-free if they begin after the fifth year the taxpayer has a Roth IRA (starting with the initial contribution year) and the taxpayer is at least age 59 1/2, or disabled, or the distribution is a qualified first-time home buyer distribution (limited to $10,000). If the owner dies, the beneficiary can receive tax-free distributions if it has been more than 5 five years since the owner opened a Roth IRA.

Annual contributions to all IRAs - Roth and traditional - are limited to a total of $2,000 per person. The limit for Roth IRAs is phased out as adjusted gross income (AGI) increases from $95,000 to $110,000 ($150,000 to $160,000 on a joint return). Unlike the traditional IRA, Roth IRAs allow people to contribute if they are still working after they reach age 70 1/2 and don't require withdrawals while they are living.

People with AGI under $100,000 can convert a traditional IRA into a Roth IRA. They will have to pay tax as though they had withdrawn the funds, but there is no early withdrawal penalty. Taxpayers who converted to a Roth IRA in 1998 had an option of reporting the taxable portion over a four-year period. Those doing so should report their 1999 portion on their return. Married couples filing separate returns can't convert a traditional IRA into a Roth IRA.

Publication 590, Individual Retirement Arrangements (IRAs) (Including Roth IRAs and Education IRAs), explains the tax rules that apply to IRAs - traditional IRAs, Roth IRAs, SEPs, SIMPLEs, and Education IRAs - and the penalties for not following them. Rules discussed include those affecting contributions, deductions, transfer (including rollovers) and withdrawals. To order, call 1-800-829-3676.

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