A rundown on IRA details that still cause some head-scratching

At first glance,the rules of the individual retirement game seem simple enough: Put in your money, take the deduction, watch the account grow tax free, and have a bundle waiting at retirement. But after nearly four years of the ``universal'' IRA, there are still some details that occasionally cause confusion: Limits: The limits are still $2,000, which is a top limit, something IRA sponsors seem to have to keep repeating. As far as the Internal Revenue Service is concerned, you can deposit as little as one dollar, though you'll probably have trouble finding a trustee to take an account that small. In fact, you may have to shop around to find a bank or thrift to start you with $25, but they are available. Be aware, though, that if you somehow put in more than the maximum, you'll be hit with a 6 percent penalty on the excess for every year the surplus is in the account. Income: To be eligible for an IRA, you have to have earned income, which means wages, salaries, tips, or self-employment income. Eligible compensation does not include interest, dividends, rents, or other returns on investments, or money earned abroad that is not taxed in the United States. Although IRA contributions must be based on eligible earnings, the actual money can come from any source, including personal savings or borrowed funds. Age: The ages to remember are 591/2 and 701/2. You can set up an IRA anytime until you are 701/2. Also, you cannot make any new IRA contributions in the year you reach 701/2, and if you haven't started making withdrawals from the IRA yet, you must do so by then. As for withdrawals, they can't be made before 591/2 without penalty. Deadlines: You still have a few weeks to make an IRA contribution for 1984, which will reduce your tax bill for that year. But unlike previous years, you must make the IRA deposit before April 15, not by the date of any extension. While extensions are still fairly easy to get, there are no postponements for IRAs. Already filed? Even if you've already sent in your 1984 return, you can still open an IRA for that year or make a deposit in an existing account. In fact, if you filed early enough and were due a refund, you may already have received that refund, which can be used for the IRA. Now, just file an amended return. Switching: You can move any part or all of your IRA from one trustee (bank, broker, or mutual fund) to another if you don't like the way things are going. If you keep the money in a mutual fund ``family,'' you can move it anytime you like. But if you move from one trustee to another, each IRA account can be moved only once a year, and you have to put the money with the new trustee within 60 days to avoid penalties. Spouses: If one spouse does not work, the IRA deposit limit is $2,250. You can't put all $2,250 in one IRA, though. It has to be split somehow. But you aren't limited to putting $2,000 in one IRA and a meager $250 in another; you can split it any way you want, as long as one IRA doesn't get more than $2,000. This can be useful for older couples: If, for example, the wife is several years younger than the husband, the bulk of the savings could go into her IRA. This way they could keep making contributions until she reached 701/2. Alimony: Last year, you couldn't use alimony payments for an IRA. This year you can, even though alimony is not generally considered ``earned'' income. By the way, IRAs can be included in the property settlement in case of a divorce. Multiple IRAs: You can have as many IRAs as you like, as long as your annual contributions don't exceed $2,000. As people have built up more money in their IRAs, they are starting to look for additional trustees, to spread the risk. Trustees: You can't just put your money in some investment and call it an IRA. It must be placed with an institution qualified to act as an IRA trustee. This includes banks, savings-and-loans, credit unions, mutual fund companies, stock brokerage firms, and insurance companies offering annuities. And the account must be specifically designated as an IRA. Penalties: If you take any money out of your IRA before age 591/2, you'll be hit with a 10 percent penalty and will owe taxes on the withdrawal. Personal or family emergencies won't qualify as reasons to escape the penalty; only IRA holders who have become permanently disabled are exempt. But the tax-free growth of IRAs means you can still come out ahead after several years, even with an early withdrawal. Also, you're only penalized on the amount taken out, which may be only a small portion of the total IRA savings. Eligible investments: The range of eligible IRA investments is wide, taking in certificates of deposit, stocks, bonds, mutual funds, options, government securities, annuities, real estate, and limited partnerships. For instance, shares of a limited partnership in a racehorse have been used for IRAs. The only things that are not allowed are life insurance and collectibles, including gold, art, and diamonds. The investment `window': The longer your money is in the IRA, the more tax-free interest it can earn. With this in mind, remember that you actually have a 151/2-month ``window'' to make IRA contributions. A 1985 IRA, for example, can be funded anytime from Jan. 1 of this year to April 15 of next year. But the earlier you invest, the more interest you will have later. According to the US League of Savings Associations, if you invested $2,000 at the beginning of every year instead of waiting for the tax filing deadline, your IRA (assuming a constant 10 percent return) would be worth an additional $1,492 after five years. After 30 years, the earnings alone would be $41,570 greater than if you had waited until the final deadline each year. Other retirement accounts: Even if you have some other retirement account, like a 401(k), 403(b), Keogh, or company pension, you can still have an IRA, as long as you're using eligible compensation for it.