IMPORTANT TAX
INFORMATION ABOUT YOUR IRA
Recent tax laws change some of the rules governing your IRA. These changes,
effective January 1, 1997, are summarized below. Please keep this summary with
your IRA disclosure statement and other IRA papers in case you want to refer to
it in the future. If you have any questions, please call Investor Service Center
toll-free at 1-888-503-FUND.
1 Married IRA Owners - New Contribution Limits
Under the old rules, for a married couple with only one spouse with earned
income, each spouse could have an IRA, but the combined contribution to
both IRAs for a year was limited to $2,250.
Now, if you are married (filing jointly) and each spouse establishes an
IRA, there is a higher limit. Each spouse may contribute up to $2,000 to
his or her IRA for a year as long as both spouses have at least $4,000 in
earned income for the year as shown on the joint income tax return.
If the combined earned income of both spouses on the joint income tax
return is less than $4,000, the following limits apply:
The higher compensated spouse's IRA contribution may be any amount up to
that spouse's earned income.
The lower compensated spouse's IRA contribution may be any amount up to
that spouse's earned income plus any amount by which the higher compensated
spouse's earned income exceeds the higher compensated spouse's IRA
contribution.
The maximum contribution to either spouse's IRA is $2,000.
2 IRS 10% Premature Withdrawal Penalty - New Exceptions
Most withdrawals from an IRA before age 59 1/2 are subject to an IRS 10%
penalty tax in addition to regular income taxes. There are certain excep-
tions, such as death or disability, when with- drawals before age 59 1/2are
not subject to the 10% penal ty. Now, there are two additional situations
in which the penalty is not imposed.
First, withdrawals during a year of any amount up to your deductible
medical expenses for the year are not subject to the 10% penalty tax.
Generally speaking, medical expenses paid dur- ing a year that exceed 7
1/2% of your adjusted gross income f or the year are deductible.
Second, withdrawals of any amount up to the premiums you paid for health
insurance cover- age for yourself, your spouse and dependents are not
subject to the 10% penalty tax. For this to apply, you must have been
unemployed and received federal or state unemployment compen- sation for at
least 12 weeks. Withdrawals during the year you received the unemployment
com- pensation or during the following year are eligi- ble for this
exception, but not any withdrawals after you have been reempl oyed for at
least 60 days.
3 Penalty for Excessive Withdrawals
One new rule affects individuals with very large balances in their IRAs
(and other tax-favored retirement plans). Now there is a 15% IRS penal- ty
tax on distributions to you during a year from all IRAs and other
tax-favored retirement plans tha t exceed $160,000 (this amount is for
1997; it is indexed annually for cost-of-living changes).
Under the new rule, this 15% penalty tax will not apply to withdrawals from
your IRA (or to dis- tributions from your other tax-favored retirement
plans) during calendar year 1997, 1998 and 1999 . A related 15% estate tax
penalty on certain excess amounts remaining in all your IRAs and other
tax-favored retirement plan accounts upon your death continues to apply
during these years. Consult your tax adviser on whether you should conside
r making withdrawals from your IRA during this three-year period.
Investor Service Center, Inc.
11 Hanover Square, New York, NY 10005
1-888-503-FUND
isc-irtx-2/7
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