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PAGE 20 - PLAINDEALER - WEDNESDAY, SEPTEMBER 10, 1975 New Pension Plan Opportunities Northern Illinois IRS Director Charles F. Miriani has made available a series of questions and answers relating to new Pension Plan op­ portunities. These questions and answers, which are listed below, should help to answer the majority of questions plaguing area residents about pension plans. Illinois residents not already covered by pension or profit- sharing plans may be able to contribute tax-deductible dollars toward their retirement as a result of the Pension Reform act of 1974. Q. I understand that a change in the law makes it easier for people who aren't covered by pensions to save for retirment. Is this true? A. Yes. Any one not covered by a pension or profit sharing plan at work can now make tax deductible contributions of up to $1,500 a year into an in­ dividual Retirement account. Social Security or Railroad Retirement coverage does not make a person ineligible for an Individual Retirement Ac­ count. Q. What are the advantages of an Individual Retirement Account? . A. An Individual Retirement account can offer these tax savings: (l) annual contributions to an account are deductible from gross income, even though the taxpayer may not itemize deductions, (2) interest, dividends, or capital gains earned on the contributions are not taxable as such amounts accumulate, and (3) tax is due only after funds are withdrawn from an account, normally after the individual is retired or disabled, and in a lower tax bracket. Moreover, Individual Retirement accounts cannot be seized to pay debts. Q. What are the limitations of an Individual Retirement account? A. Because it is intended to provide retirement security, rather than current income, there are restrictions on with­ drawals from an account prior to the individual reaching age *59V2 or becoming disabled. First a 10 percent penalty is charged on the amount with­ drawn early, and second, the withdrawal becomes part of the individual's taxable income for the year. Q. Where can I learn more about Individual Retirement accounts? A. Write to: IRS Employee Plans, Box A3617, Chicago, 111., 60690. Q. How can I open an In­ dividual Retirement account at a financial institution? • A. Copies of Form 5305, for setting up a trust account, and Form 5305A, for a custodial account, are available at IRS offices. Tne forms may be taken to a financial institution where the proper type of ac­ count can be established, and the necessary agreement concluded. Q. I'm not covered by a pension plan where I work. What are the ways I can invest funds in an Individaul Retirement account?' A. There are several methods. An Individual Retirement account can be set up as a trust or custodial ac­ count at a Federaly insured financial institution such as a CATCH THE 'FALLING PRICES! CATCH THE 'FALLING PRICES! 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A number of insurance com­ panies offer individual retirement annuities, and U.S. Individual Retirement Bonds are available from federal reserve banks and branches and the Treasury department's Bureau of Public Debt, Washington, D.C. 20226. Funds in accounts in many thrift institutions can be invested in annuity contracts, savings accounts, mutual funds and stocks or bonds. Additional information may be found in IRS Publication 590, Tax In­ formation on Individual Retirement Savings Programs, available free from the IRS offices. Q. Am I the only one who can contribute to my Individual Retirement account? A. No. Employers and unions can sponsor group Individual Retirement accounts for em­ ployees and members and make contributions to these plans. Q. Is there any limit on what can be contriburted to an In­ dividual Retirement account? A. Yes, the maximum per year is 15 percent of the in­ dividual's wages, salary, or annual earnings or $n,500. Whichever is lesser. That, limit applies regardless of whether the individual, employer, or union contributes. The amount is tax deductible on your in­ dividual income tax return. Q. If I'm laid off or leave my job, can I withdraw the money 1 have vested in my company's qualified pension plan then put it in an Individual Retirement account? A. If your employer permits, you may take the money and put it in an Individual Retirement account. However, you must do so within 60 days of receipt. The 15 percent of $1,500 limit does not apply to money transferred to an individual retirement account under these circumstances. Nor is there a penalty charge Jay the IRS. If your new employer permits, you may withdraw from your individual retirement account the funds which came v from your previous employer's qualified pension plan and place them in your new em­ ployer's plan when you become eligible. Again, you wouldn't have to pay a penalty or tax on the money transferred. Q. I've retired from the military and am drawing retirement pay. My present employer doesn't offer a pension program. Does my military retirement pay make me ineligible to set up my own individual retirement account? A. No. A person who is drawing retirement pay from the military, a police depart­ ment, a fire department, or any other occupation, may still establish an individual retirement account, as long as he or she is otherwise eligible for an account. Q. I understand that a change in the pension laws increases the amount of money that can be put into a Keogh act plan. What is the new limit? A. Plans under the Keogh act. also called HR-10, now have an annual limit of 15 percent of self-employmetn income, or $7,500whichever is less. Q. What are some of the differences between a Keogh act plan and an individual retirement account? A. Keogh act plans enable self-employed persons to put aside money for their retirement without having to pay tax on the funds until they retire and receive funds. In­ dividual retirement accounts provide similar tax benefits for those who work for others, but are not covered by a company or union retirement plan. Employers cannot establish Keogh plans for themselves without including their em­ ployees, but employers can set up their own individual retirement plans. More detailed information can be obtained from IRS offices, where free copies of Publication 590, Tax in­ formation on Individual Retirement Savings programs, are also available. Q. I've read that I can't with­ draw money from my In­ dividual Retirement account without penalty until I'm 59'/2 years old. Can I wait until I'm older before drawing on my account? A. Yes,, however, you must begin taking money from your Individual Retirement Account by the end of the year in which you reach age 70'/2. From that pont on, a penalty of 10 percent is charged on the amount by which annual withdrawals fall short of the sum needed to exhaust the fund within the individual's remaining years. The IRS has a formula to determine how much must be withdrawn annually under these circumat-ai ORNAMENTAL IRON Railings-Columns Custom Fabricating Welding & Structural STEEL SALES ADAMS BROS. (Next to Gem Cleaners) 3006 W. Rte. 120 McHenry Phone: 385-0783