A common IRA misconception is that people active in an employer-sponsored retirement plan cannot make an IRA contribution. These people may still participate but theirmtax-deductibility for an IRA may be reduced or eliminated, depending on their adjusted

gross income. For example, if either spouse participates in a qualified plan through their respective employers and file their taxes jointly, the deductibility is reduced when adjusted gross income ranges between $41,000.01 and $51,000 (1999 limits). Full deductibility is available below $41,000.01, while between $41,000.01 and $51,000 contributions are partially deductible. If adjusted gross income exceeds $51,000, the contribution is entirely non-deductible (if you're single, deductibility is reduced for adjusted gross incomes between $26,000.01 and $36,000 and eliminated above $35,000 for the 1999 tax year). Note that individuals making non-deductible IRA contributions must file form 8606 with their federal income taxes to avoid a penalty.

Regardless of deductibility, earnings inside an IRA grow tax deferred. And, the benefits of tax-deferred growth are significant compared to taxable investments. For example, assuming a six percent average interest rate compounded annually, a client who begins annual $2,000 IRA contributions at age 25 will accumulate to $339,354 by age 65, due to the tax-deferred growth. (This amount will be subject to tax when withdrawn.) Compare this to the $213,894 earned by making $2,000 annual contributions to a taxable investment (based on a 28 percent tax bracket). Income taxes apply when contributions and/or earnings are distributed from an IRA.