Looking for more than tax savings from IRAs

Deferral of income taxes by using individual retirement accounts (IRA) attracts most of the attention for these private pension plans. But, investment gains from the money set aside should be considered too. Questions from an earlier "Moneywise" column point to a continuing interest in IRAs.

Regulations governing IRAs originate from and are administered by the Internal Revenue Service. The IRS approves plans for IRAs ad checks on compliance. The Federal Trade Commission issues warnings about misrepresentation of IRA plans and has published a folder, "Plain Talk About IRAs." Single copies are free from local offices of the FTC or from their headquarters, Pennsylvania Avenue at Sixth Street, NW, Washington, D.C. 20580.

While regulations do not limit the number of IRAs one person may open and maintain, there is a practical limit. Opening an IRA in a no-load mutual fund will likely require a minimum initial deposit of at least $1,000. Smaller add-on deposits will usually be accepted. Minimum opening amounts are even greater for self-directed IRAs where you advise the trustee what and when to buy or sell stocks, bonds or other investments. Probably the smallest opening would be a $50 US individual retirement bond. Individual trustee accounts at banks and savings and loans can also begin with small amounts. Opening a variety of IRAs makes little sense until $5,000 to $15,000 can be invested.

Dollar differences between yields will not be significant when only $100 to $ 500 are invested in one vehicle vs. another. A better plan is to open one IRA for one year and pick the investment that appears to offer the best combination of short-term and long-term yield. If a short-term yield appears good for the moment, as today when money-market mutual funds are yielding around 14 or 15 percent, all deposits could be funneled there. Later, the cash could be rolled over into a different IRA.

To open an IRA with a no-load mutual fund, you must first obtain a prospectus and application directly from the either by calling on the fund's toll-free telephone or by writing. Note the minimum initial deposit amount. Complete the few lines of the application, include a check for your deposit and mail it off to the custodian bank. It's that simple.

Finding a trustee bank or brokerage house that offers a self-directed IRA may be more difficult. Ask your local bank first. Some will only permit a planholder to manage his own investments if the account totals $10,000 or more. Major brokerage houses will help you establish a self-directed IRA (or Keogh) if you trade with them exclusively. Compare the costs among several trustees, as the individual attention required for managing self-directed accounts adds to the cost. You could find yourself paying $100-$250 each year in expenses. Of course, these expenses are deductible.

If you should elect to spread your IRA funds among different accounts, the 15 percent or $1,500-a-year limit applies to the total -- not to individual accounts. Each account will require a different identification number.

Although there have been some changes in regulations since the book was issued, "What You Should Know About Individual Retirement Accounts" by L. L. Unthank and Harry M. Behrendt (Dow Jones-Irwin, Homewood, Ill. 60430) is a useful source, because it is written in question-and-answer format.

Major changes are being considered in Congress and might be enacted before adjournment in 1980. One change would extend IRA opportunities to all persons. Currently only persons who do not participate in a pension os profit-sharing plan where they work may open an IRA (except for employees of a nonprofit organization). The annual limit may also be increased to $2,000 at 15 percent of gross earnings.