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For 17-year-old who wants IRA, door is open a crack

Q: My daughter had a part-time job in 1993 and has received a W-2 Form showing the income she earned. She would like to start an individual retirement account. But because she is only 17, neither our bank nor two mutual fund organizations would open an IRA for her. Can you suggest an option?

A: Although it doesn't qualify as an option, your daughter should follow the timeworn advice to try, try again.

I checked with the bank and both mutual fund groups you named in your letter and found the door to IRAs is not slammed shut to her.

The hang-up is your child has not reached the age of majority, which varies from 18 to 21 in different states. Minors cannot own stocks legally in their names, and contracts they enter into can be repudiated.

With that in mind, spokesmen for the mutual funds said their organizations will not knowingly offer IRAs to minors, but their IRA application forms do not require proof of age _ indicating that some minors have opened IRAs.

A spokeswoman for the bank provided more hope. Conceding that the bank does "bend the rules," she said youngsters sometimes open IRAs there. She suggested that your daughter visit the local branch, sit down with the community relations officer and have everything explained.

Q: Our teenage son has landed a minimum-wage, after-school job. He is a very serious young man and has arranged to open an IRA. My wife's brother, who is an accountant, suggests that our son make non-deductible contributions to the IRA until he earns more money. What do you think of that?

A: It's an excellent suggestion for long-range financial planning. But it does get complicated. Hang on for details.

Along with everyone else who has taxable compensation and is younger than 70{, your son is entitled to put $2,000 or his entire salary, whichever is smaller, into an IRA annually.

He could take a deduction for each IRA contribution and not pay income tax on it. Tax would then be postponed until he made withdrawals from the IRA, usually after retirement. That is the way the vast majority of people handle IRAs.

If your son does not take tax deductions for IRA contributions, he would pay income tax on that money as he puts it in annually. But, when he later made IRA withdrawals, the portion attributable to the non-deductible contributions would not be taxed.

In his minimum-wage job, your son almost certainly is in the lowest _ 15 percent _ income tax bracket. So, by making deductible contributions, he would reduce his income tax by $300 each year.

Assuming he is successful in life, he would be in a higher income tax bracket at withdrawal time. As a result, his income tax would be cut a good deal more than $300 every time he withdrew $2,000 of non-deductible contributions from his IRA.

William Doyle welcomes written questions, but will be able to give answers only through the column. Address questions to William Doyle, King Features Syndicate, 235 E 45th St., New York, N.Y. 10017.

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