Back in 1974, Congress created the Individual Retirement Account (IRA) to give consumers a tax-advantaged incentive to save for retirement. This is what is now called the "traditional IRA."

The traditional IRA has always been a great savings vehicle. It is now even better. These accounts are still available to anyone under age 701/2 who has income from compensation.

Contributions are tax deductible for more people starting in 1998, and income tax on the account's earnings is still deferred until the funds are withdrawn.

Even when contributions aren't deductible at the time you make them, the advantages of tax-deferred compounding have always made this account an excellent choice to outperform taxable, non-IRA investments over the long term. So how do you take something this good and make it better? Here is a summary of the changes to this type of IRA for 1998.

MORE QUALIFY FOR DEDUCTIBLE CONTRIBUTIONS

Starting for tax year 1998, the income limits for deductible contributions have been increased, making more people eligible. Where both spouses participate in an employer retirement plan, couples filing a joint tax return can fully deduct IRA contributions if their modified adjusted gross income (MAGI) from the federal tax form is $50,000 or less. They are eligible for a partial deduction with MAGI between $50,000-60,000. For single persons who participate in an employer retirement plan, contributions are fully deductible if MAGI is $30,000 or less (partially deductible with MAGI from $30,000-40,000).

Also starting for 1998, there are new rules for couples when only one spouse participates in an employer retirement plan. Where a couple files a joint income tax return showing MAGI of $150,000 or less, the spouse who does not participate in an employer retirement plan is eligible for a fully deductible contribution. A portion of the IRA contribution is deductible with joint MAGI up to $160,000.

MORE FLEXIBILITY WITH PENALTY-FREE WITHDRAWALS

You have more options to withdraw funds from traditional IRAs without the 10% tax penalty that applies to distributions before age 59 1/2. Withdrawals for qualified higher education expenses are now penalty-free. Qualified expenses include tuition, fees, books, supplies, and equipment to attend college or vocational school.

Penalty-free withdrawals are also allowed for first-time home buyers to buy or build a home, including settlement, financing, or other closing costs provided the home buyers haven't owned a home during the past two years.

Penalty-free withdrawals continue to be available for IRA owners who reach age 59 1/2, become disabled, or have qualifying medical expenses.

CONTRIBUTION MAXIMUM IS STILL $2,000

The maximum contribution to a traditional IRA is $2,000 per individual per year or 100% of annual compensation, whichever is less. The contribution can be to a traditional IRA, Roth IRA or split between the two types of accounts.