IRS refund time is good time for an IRA

The hype, hoopla, and pressure of the IRA ``season'' have passed, along with the last-minute rush to get the income tax forms in the mail. This might be a good time, then, to take a more thoughtful look at your individual retirement account, while some of the ideas are fresh and there may still be some sales literature and prospectuses cluttering your desk.

Yes, it's too late to open an IRA for 1985. Even if you got an extension on your filing date for 1985 taxes, you had to have made your 1985 IRA deposit by April 15.

But if you haven't made your deposit for 1986 yet -- or even if you have -- take some time now to decide if your IRA is in the best place and where you want new money to go.

By now, you've probably seen the dramatic difference an early IRA deposit can make: If you're in the 35 percent tax bracket and you make a $2,000 contribution at the beginning of a tax year (like Jan. 2, 1986) instead of the last possible day (like April 15, 1987), your IRA will accumulate more than $15,000 more over a 30-year period, assuming a 10 percent interest rate.

A more conservative look at the same question was taken by the Employment Benefit Research Institute, a nonprofit organization. It calculates that waiting until the last minute to put $2,000 in an IRA would lose $160 a year, compared with making the investment at the beginning of the tax year.

``And that's assuming an 8 percent yield,'' says Bonnie Newton, an institute spokeswoman. ``If you assume a higher return, you would lose more.''

True, Jan. 2 has come and gone. But you've lost only four months or so, which leaves more than 11 months (until next April 15) that your 1986 IRA can be earning tax-free interest.

You may not have the money right now, but maybe you're getting a refund. Although it hasn't arrived yet, you know how much it will be -- assuming your math is correct; so start looking for the best IRA home for it.

For many people with IRAs, another deadline will be approaching this summer or fall. Back in the 1984 tax season, when interest rates were several points higher than they are now, but there were signs of the decline to come, many smart savers locked in rates with 30-month certificates of deposit. CDs purchased just before April 1984 will mature in the middle of next October; those bought not so close to the deadline will come due sooner.

``Now's the time to begin making arrangements about what to do with that money,'' says Brian Mattes, spokesman for the Vanguard Group of mutual funds.

Mr. Mattes, of course, has an interest in seeing some of that money move into mutual funds -- particularly his -- but the advice is sound. If you have any IRA money in CDs, make an inventory of them and the dates they mature. If you don't get the money out within a month after maturity at most institutions, it will simply be rolled over into another CD of the same maturity -- at today's interest rates.

Also, it takes a little while to make a transfer. If you do get into a mutual fund, you have to call or write for a prospectus, or several of them, to compare funds. Then you fill out the application and wait for the fund company or its servicing agent to process your application and payment. You should do some work, like studying and comparing investments, well ahead of your CD maturity date.

This is also a good time to think about setting up a regular IRA contribution system. Spreading regular contributions evenly throughout the year gives a hedge against changing markets. If you make the same contribution every month, you aren't worrying about ``timing'' the market, and this stabilizes the return.

One way to make regular contributions is through an automatic withdrawal plan. Many banks, brokerages, and mutual funds offer such systems, where money is taken out of a checking or savings account on the same day every month. Or, if your employer offers direct deposit of your paycheck, have part of it sent to a separate savings account.

For some people, the approaching April 15 date was a time to put their IRA money somewhere -- anywhere -- as long as it beat the deadline. They may have put it in a money market fund, for example. A money fund is a good place for parking, but these days it's not too hard to find something with a better return. Now, with a little more time for thought, you can investigate other options on the mutual fund menu or try something else, like a self-directed brokerage account.

If you stay in the same mutual fund family, you can move your money from one fund to another as often as you like, as far as the Internal Revenue Service is concerned. The fund company may impose its own charges for transfers, however, or only allow a certain number of free transfers per year.

For its part, the IRS permits one switch between trustees a year. Once you take your money away from one IRA trustee, you have 60 days to get it with another without being hit with penalties.

Also, there can be complications in closing out an IRA investment. The various agencies that regulate the financial services business have received numerous complaints about transfers not being made quickly enough, especially during the tax-filing season. So this might be a better time to make these transfers. But you should still keep a close watch on the account to make sure your orders are being carried out.