New laws create more flexible IRAs.

Congress created a more powerful and flexible individual retirement account with the passage of the Small Business Job Protection Act and the Health Insurance Portability and Accountability Act. They affected IRAs in three significant ways, indicates the Institute of Certified Financial Planners, Denver, Colo.

Full spousal contribution. Beginning in 1997, the Business Act allows each jointly filing spouse to deposit annually up to $2,000 tax-deferred to an IRA, for a total of $4,000-even if one of the spouses has less than $2,000 (or none) in earnings. Total IRA contributions for the spouses, however, can not exceed their combined earnings for the year.

The contributions still are limited under previous law regarding the deductibility of the contribution. That is, if neither spouse is eligible to be covered by a qualified retirement plan such as a 401 (k) or 403(b), the contributions are deductible. If either is covered, the full contributions may be deducted as long as joint adjusted gross income (AGI) does not top $40,000. The deduction gradually is phased out between $40,000 and $50,000. people are eligible for a qualified plan and their income is too high, they still can contribute up to $2,000 each to their IRAs, but the deductions are not tax-deductible (earnings are tax-deferred).

Medical expense withdrawal. Employees under age 59 1/2 have been able to withdraw funds from qualified retirement plans free of the 10% early withdrawal penalty tax to help pay for certain medical expenses, but that option was not available for IRAs. The Health Act allows IRA investors to tap their accounts to pay for qualified medical and dental expenses that exceed 7.5% of their...