New Roth IRA expands tax-free earnings.

Education IRA Available for Some

The Roth individual retirement Account, available to investors beginning next year, has been called the deal of the century by at least one financial adviser.

It may not be that significant, but it does provide plenty of options previously unavailable to investors.

Contributions to the Roth IRA aren't deductible, but the allure is that investment earnings are tax-free.

The Roth IRA is named for Sen. William Roth Jr., R-Del., chairman of the Senate Finance Committee who pushed for the legislation, known as the Taxpayer Relief Act of 1997. According to a pamphlet prepared by the accounting firm of Deloitte & Touche, the Roth IRA's principal features are:

* No tax deduction is allowed for contributions to the IRA.

* Income accumulates tax-free in the account.

* Qualified distributions from the account are not included in income.

* Income limitations for contributions begin at $95,000 for single taxpayers and $150,000 for married taxpayers filing jointly.

* No distributions are required at age 70 1/2, and aren't necessary until death.

The new law is very complicated, says Scott Crabtree, a tax manager with Deloitte & Touche's Little Rock office.

"It's really unbelievable," Crabtree says. "Clearly, accountants and attorneys have a full-employment act."

Crabtree points out that the new IRA opens the investment accounts to a completely new group of individuals. This year, tax-deductible IRAs are limited to married couples who earned around $40,000 or singles who earned about $25,000, he says.

Now, those limitations are going up considerably - to $95,000 for those filing as singles or $150,000 for a married couple filing jointly.

"The gist of it is many people were precluded from doing an IRA before because the income levels were so low," Crabtree says.

Withdrawals from the Roth IRA are tax-free and penalty-free if the individual is 59 1/2 or older and the IRA has been open for at least five years. In addition, withdrawals from the Roth IRA are tax-free and penalty-free if the money is used for a first-time home purchase (up to $10,000).

You can roll over the funds in your regular IRA to a Roth IRA in 1998 if your income is less than $100,000. You have to pay taxes on the amount required to be included in gross income, but if you make the transfer before Jan. 1, 1999, a special one-time rule allows the taxes to be spread over a four-year period. One limitation, however, is that only married taxpayers filing separately cannot make the rollover to a Roth IRA.

Education IRA

                             Total            Year-end
Age                       Invested               Value

Birth                         $500                $540
5                           $2,500              $3,961
10                          $5,000              $8,989
15                          $7,500             $16,375
18                          $9,000             $22,381

Contributions can be made to either to a regular IRA or the Roth IRA or to both of them as long as the total amount contributed doesn't exceed $2,000.

Education IRA

An Education IRA, which begins next year, allows investors to contribute $500 a year for each child for higher education expenses. These contributions can be in addition to the money invested in other IRAs. The income limitations are the same for an Education IRA as for the Roth IRA.

Also like the Roth IRA, money invested in an Education IRA is not tax-deductible, but withdrawals to pay for higher education are tax free.

Withdrawals from the Education IRA must be made by the time the child is 30 or it will be taxed and subject to a 10 percent penalty. If the child does not use the funds, the money can be transferred to another family member to pay for his higher education. The money is only available for higher education, not for elementary or secondary education.