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Bonus for opening IRA account could end up setting you back

They are not toasters or casserole dishes. Premiums given to attract new IRA deposits don't follow the pattern of 1960s bonuses to attract new savings deposits to banks. But they are bonuses. And as you scurry around looking for the best yield before the April 15 deadline, keep an eye out for them -- a wary eye. Some kinds of bonuses could add to your nest egg, but others could trigger tax consequences that could void your whole IRA.

IRAs are big business these days. They are rapidly becoming the largest chunk of investor-directed capital available to many individuals.

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Those individuals with a yen to invest in the market -- or mutual funds -- in search of the higher interest are finding themselves with the capital to do so. Banks and savings institutions, with their never-ending thirst for new funds, are fighting back -- with bonuses.

Bonuses usually come in one of two forms -- an exact dollar amount, or a percentage of money deposited, says Robert Heady, publisher of 100 Highest Yields, a Miami Beach-based newsletter that monitors the banking industry.

To find the best IRA yield, says Mr. Heady, don't decide among investments on the basis of the ``brilliant, blithering, gigantic numbers'' in the ads. Some of the interest rates advertised are short-lived bonuses indeed, such as 30-day promotions, and are ``apt to be misleading.''

Heady advises asking just one question: ``How much money will I have in one year in this account after all fees are subtracted?'' This is the only way yields can be easily compared, he says.

Anchor Savings of Kansas City, Mo., is one of the institutions offering inducements. These are open to those initiating new fixed-rate IRA money accounts for at least one year, says Robert Covell, an assistant vice-president.

Anchor offers a premium of 2 percent extra interest on the deposit for the first three months of the term, immediately payable to the IRA. On a $2,000 deposit, that would come to $10. With a rollover deposit included, the bonus on a new IRA could come to $40. Unlike some other institutions, Anchor assesses no fees or charges on IRAs and Keoghs, and no penalty for transferring accounts to another IRA investment after the term of the certificate of deposit has expired (trustee-to-trustee transfers).

Bonuses that add interest directly to an IRA are fine with the Internal Revenue Service, says Peter Elinsky, tax partner with the New-York based accounting firm Peat, Marwick, Mitchell & Co. But those that offer you something outside retirement benefits are limited to a fair market value of $10 for a deposit of less than $5,000, or $20 for a deposit of $5,000 and over, according to a joint IRS and Department of Labor class-exemption proposal, he says.

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This proposed exemption would be from a Congress-mandated law that prohibits you from benefiting personally (outside of retirement benefits) from your IRA.

So beware if you are offered a free checking account, free safe deposit box, or higher interest on a non-IRA CD as inducement to open an IRA, Mr. Elinsky says. If the fair-market value is not within the guidelines above, it could be considered a ``prohibited transaction'' by the IRS. This could disqualify the whole IRA from tax-exempt status, he warns.

Getting a free checking account is not really worth the possibility of extra taxable income (which could mean $16,000 more taxable income for a couple that has contributed to an IRA since 1982), plus an IRS penalty. So check out questionable offers carefully with the IRS first.

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