Because of an editing error last week, several paragraphs in the Oct. 26 edition of Your Balance Sheet were transposed. They are reprinted correctly below.
Ouestion: Starting next year the tax reform act will allow us to deduct from taxable income contributions to an IRA. I am a federal employe and contribute 7 percent of gross pay to the retirement fund. Does this contribution qualify for the IRA deduction?
Answer: No. Mandatory employe contributions to an employer's retirement plan do not qualify. But in addition to your 7 percent contribution you will now be permitted to open an IRA to which you can contribute up to $2,000 ($2,250 with a spousal IRA) and deduct the amount from gross income.
Question: In your discussion of the credit against the marriage tax penalty, you say it applies only to "earned income." I have never found this stated explicitly in any other article. Are pensions included in "earned income" here, as they are in another connection?
Answer: No. The law is quite specific in defining what is not included in qualifying earned income. You may not include, for computation of the credit, any amount received as a pension or annuity; from an IRA or Keogh plan; as deferred compensation; or for services performed in the employ of a spouse. (There are no details on just what the last category includes.)