Question: Although my husband and I started...

Question: Although my husband and I started making annual contributions to our Individual Retirement Accounts pretty late in life (primarily because it wasn’t available to us any earlier), we have found it gratifying to do so the last few years.

When my husband went to his savings & loan recently to make his 1985 contribution, however, he was told he couldn’t because he was over 70. Our understanding was that he could do this clear up to and including the year in which he turned 70 1/2. And, since he didn’t turn 70 until last Aug. 2, that would make this year the year in which he hit 70 1/2, so it would seem to us that he should be able to make his ’85 contribution.

They also told him at the S&L; that not only can he not make a contribution, but that this is also the year when he has to start withdrawing from what he has put aside.

Is this true, and if it is, how does this affect the contribution he has been making to my non-working-spouse IRA? He is still working full time and I am 65.--M.S.

Answer: Despite changes in the Individual Retirement Account that were supposed to liberalize and simplify the IRA, both in ’82 and last year too, there are still plenty of complexities in it.

(Prior to ‘82, for instance, you couldn’t set up an IRA at all if you were participating in any other “qualified” pension or retirement plan. And, until then, the maximum annual contribution was $1,500 for the working spouse or $1,750 for both--divided into two separate IRAs-- or 15% of compensation, or two times the lesser amount contributed to either IRA. Obviously, some sort of clarification and simplification was badly needed).

What the S&L; told your husband was essentially true, although an important omission or two also crept into the picture. John Popovich, vice president of consumer affairs for First Interstate Bank, said the general rule of thumb for determining when you must stop making contributions into an IRA and begin making withdrawals is this: If you turn 70 1/2 before July 1, then you cannot make a contribution for that year. Your husband hit 70 1/2 this past February.

And, since 1982, the maximum was raised from $1,500 to $2,000 or 100% of earned income, whichever is less, or $2,250 total to include a non-working spouse. The curious wording in all this ($2,000 or 100% of earned income, whichever is less), meant that--to cite one example--if a retired person piddled around making and selling macrame as a paying hobby, for instance, he could put his entire annual income from this activity into an IRA as long as that income wasn’t in excess of $2,000.

The requirement that you begin withdrawing from your IRA at age 70 1/2, Popovich added, is based on the fact that Congress didn’t establish this retirement plan for the purpose of letting participants build up a tidy, tax-sheltered nest egg for their heirs. Not only do you have to begin withdrawing at that time, you have to do it at an annual rate that is based on your life expectancy, or the joint life expectancy of you and your spouse--and there’s a stiff 50% penalty if you don’t.

What the S&L; didn’t tell your husband, however, Popovich continued, is that because he is still working, he can contribute up to $2,000 a year to your IRA even though, at the same time, he must begin withdrawals from his. It can make for a curious sort of round robin: He contributes to your IRA (which is deductible), even as he withdraws from his own (which is taxable income).

Another variation: He continues to pay into your IRA, withdraws from his own and, at the same time, you begin withdrawal from your IRA too (income that is also taxable to you, but doesn’t entail any penalty because you are already over age 59 1/2). And, as long as your husband continues working, of course, he can keep on this way until you reach age 70 1/2. As soon as he stops working, of course, the contribution merry-go-round ends.

What would be the purpose of this complicated business of contributing to your IRA while simultaneously withdrawing from his own?

Well, there’s more to it than meets the eye. The two activities wouldn’t simply cancel each other out--as might be your first suspicion--because the withdrawal from his IRA will be based on your joint life expectancy and, almost certainly, this will be at a much lower level than the $2,000 a year that your husband is continuing to pump back into your IRA. (Realistically, neither of you has been involved in IRAs long enough to have a massive nest egg).

So, as his IRA shrinks, yours (with nothing being taken from it) will continue to grow sufficiently to offset that shrinkage. And, of course, all the time this is going on, the $2,000 that your husband is putting into your IRA is deductible, and the tax savings here should also largely offset your husband’s taxable withdrawals.

When you too hit 70 1/2, all bets are off. His contributions to your IRA, even if he is still working, must end, and you too must begin withdrawing.

Don G. Campbell cannot answer mail personally but will respond in this column to consumer questions of general interest. Write to Consumer VIEWS, You section, The Times, Times Mirror Square, Los Angeles 90053.