Septic Credit 



If you own and occupy a principal residence 

 in Massachusetts and you incur expenses to 

 make your sewer system comply with Title V 

 you may claim a credit directly against taxes on 

 your Massachusetts return. The credit is 40% 

 of the costs up to $15,000 for design and 

 construction to repair or replace a failed 

 cesspool or septic system. The maximum 

 aggregate credit of $6,000 is limited to $1,500 

 in any year. Unused credit may be carried 

 forward for up to three years. Massachusetts 

 Schedule SC must be completed and enclosed 

 with the tax return claiming the credit. 



Individual Retirement 

 Accounts (JRAsJ 



Several kinds of IRA are now available: 



1. Deductible IRA (input is deducted from 

 gross income, output is taxable). The 

 maximum amount is $2000 per spouse, the 

 amount phases out at higher incomes, and 

 the phase-out levels keep changing. Under 

 prior law, a spouse not covered by a 

 retirement plan could not make a deductible 

 IRA contribution if the other spouse was 

 covered by a qualified retirement plan. 

 TRA97 permits a non-covered spouse to 

 make a deductible IRA deduction. No 

 contributions may be made after age 70.5 at 

 which point required withdrawals must 

 begin. [I.R.C. § 408 and § 219(b), (c) and (g)] 



2. Non-deductible IRA (non-deductible input, 

 taxable output). Where phase-out rules 

 have limited the amount contributed as a 

 deductible IRA, non-deductible 

 contributions can be made (into the same 

 account if desired; Form 8606 must be filed 

 and establishes the tax-free basis of the 

 non-deductible IRA). 



3. "Roth IRA" (non-deductible input, non- 

 taxable output). The Roth IRA will be 

 available starting in 1998. It is more 

 flexible than existing IRA's. For an 

 investment made more than 5 years ago 



and withdrawn after age 59.5, the earnings 

 are not taxable. Not subject to the current 

 minimum distribution requirements at age 

 70.5. Contributions can be made after that 

 age. The maximum contribution that can 

 be made to a Roth IRA is phased out for 

 individuals with AGI between $95,000 and 

 $110,000 and for joint filers with AGI 

 between $150,000 and $160,000. Only 

 taxpayers with AGI of less than $100,000 

 are eligible to roll over or convert a current 

 IRA into a Roth IRA. In 1998, all or part of 

 a current IRA can be rolled into a Roth IRA 

 with the income tax spread over a four-year 

 period. In no case can contributions to all an 

 individual's IRAs for a taxable year exceed 

 $2,000. [I.R.C. § 408A] 



Which IRA to choose? At a constant tax rate 

 there is no difference to the taxpayer between a 

 deductible IRA and a Roth IRA. (The difference 

 is to the Government; tax payments are 

 accelerated.) If your marginal tax rate will rise 

 after retirement, choose the Roth IRA; if it will 

 fall, choose the deductible IRA. In general, 

 always make a contribution to a deductible IRA 

 if you can, then to a Roth IRA, and then to a 

 non-deductible IRA. If you want to increase the 

 amount you put into a retirement fund over the 

 $2000 per year allowed for each person's 

 combined IRAs, consider the SIMPLE described 

 below. 



SIMPLE Simplified Employee 

 Pension IRAs 



Beginning in 1997, small-business 

 employers can set up SIMPLE (Savings 

 Incentive Match Plan for Employees) retirement 

 plans. A self-employed person can set one up 

 also. Generally, the SIMPLE plan must be the 

 only retirement plan of the employer. 



SIMPLE plans are written qualified 

 salary reduction arrangements that allow an 

 employee to elect to reduce his or her 

 compensation by a certain percentage each pay 

 period and have the employer contribute the 

 salary reductions to the SIMPLE plan on behalf 

 of the employee. Any employee qualifies who 



10 



Fruit Notes, Volume 62 (Number 3), Summer, 1997 



