Last call: If you had earned income in 1982 from any source--either employment or self-employment--you're running out of time to establish an IRA and save dollars on your 1982 income tax.
You may deposit 100 percent of your earned income up to an annual ceiling of $2,000 into an IRA and reduce your taxable income by a like amount.
An IRA for 1982 may be opened and funds deposited up to the due date for your 1982 federal income tax return--April 15 in most cases.
And if you apply for a filing extension on Form 4868, the IRA closing date is automatically extended, too, until Aug. 15.
Even if you have already filed your tax return for 1982 all is not lost.
You may still open an IRA at any time up to April 15, then file an amended return (using Form 1040X) to report the IRA deposit and claim the tax reduction.
For the self-employed individual interested in a Keogh plan the rule is a little more restrictive. You also have until the due date of your return to deposit funds into a Keogh account for last year. But the account must have been in existence on Dec. 31, 1982, for the deposit to qualify for the tax reduction.
Question: I have read that you can take the money from an IRA investment and have 60 days to reinvest it in another IRA. Do you have to withdraw the total amount? And can you reinvest it in the same account from which you originally withdrew it? If that's possible, it would be a dandy feature if you need cash for some short-term use.
Answer: Let's take the points you raise one at a time. Your first statement is correct: You can withdraw funds from an IRA without tax penalty if the same amount is reinvested in an IRA account within 60 days.
This rule applies to the total amount in the old IRA or to any part of it. The entire amount withdrawn must be replaced in an IRA within the 60-day period; any part not so reinvested is a "premature distribution" subject to ordinary income tax plus a 10 percent penalty (unless the account owner is age 59 1/2 or older).
The reinvestment can be either in a totally new investment medium (more than one, if you wish) or back into the same old place again. And you're absolutely right--it is a relatively painless way to latch onto some cash for the short term at no interest cost (although of course you lose the potential earnings of the cash withdrawn during the idle period).
You are permitted to make only one transaction of this type per year. (There is no annual limit on the number of direct trustee-to-trustee transfers.)
If you're working with a load-type mutual fund, you will have to pay the sales fee again when you re-enter the account. And if your IRA is set up in a time certificate of deposit at a bank or savings institution, there may be a CD penalty imposed for early withdrawal.
The 60-day penalty-free rollover is an IRA rule and doesn't control the rules for CDs or other IRA sponsors.
Q: During most of 1982 I was a homemaker entitled to an IRA based on my husband's earnings; we opened our IRAs with the money from last spring's tax refund. But late in the year I did some typing at home and earned about $250. Does this mean I can't have a spousal IRA?
A: What you feared, alas, is true. The receipt of any earned income--regardless of amount--during the year takes you out of the category of a "nonworking spouse" and disqualifies you for a spousal IRA.
As it turns out, given the numbers you cite in your letter the total deduction on your joint tax return remains the same anyway.
The combined annual ceiling on a worker-and-spouse IRA is $2,250. In your situation, your husband is now limited to $2,000--but you are eligible for your own IRA to the tune of the $250 you earned.
The main difference: You don't have the freedom to split the $2,250 in the proportion you wish. Instead, your contribution is limited to the amount of your earnings ($250) and your husband must put his $2,000 maximum into his own account.