he Taxpayer Relief Act of 1997 created some key opportunities that will help you save tax dollars for many years to come. This column will describe several of the most important tax changes and how you can best take advantage of them.

The 1997 tax act expanded the availability of traditional IRAs. Prior to the law change, these deductible IRAs were limited. If your modified adjusted gross income (for a joint return) was between $40,000 and $50,000, your IRA deduction would have been reduced and then eliminated (the limits are $25,000-$35,000 for single filers).

The new law also created a new kind of IRA, the Roth IRA. As of Jan. 1, 1998, you can now contribute up to $2,000 into this investment vehicle. You can contribute to both a traditional IRA and a Roth IRA, but the total for both cannot exceed $2,000.

The Roth IRA is back-loaded. That means you don't get a deduction for your contributions into the account, but the distributions you receive from it are not taxed. Unlike the traditional IRA, where earnings are tax-deferred - the tax is not paid as the income is earned but only when you take distributions - all earnings with a Roth IRA are tax-free. Besides being tax-free, qualified distributions from a Roth IRA also escape the 10 percent penalty tax on early withdrawals. Qualified distributions are those made after five years from the date you first contributed to a Roth IRA, and that meet either of the following specifications:

The distribution is for first-time homebuyers' expenses of up to $10,000. These expenses include the cost of acquiring, constructing or reconstructing a principal residence. It is important to note the loose definition of "first-time homebuyer." It includes anyone who has not had an interest in a primary residence for the past two years. This means that you can qualify, even if you have owned several homes prior to the last two years. Note that this once-in-a-lifetime break applies, as of 1998, not only to Roth IRAs but to traditional IRAs as well.

Other previously-permitted early distributions (such as annuity distributions over your lifetime) also apply. Moreover, all distributions for educational expenses will be penalty free, subject to ordinary income taxes on the accumulated earnings.

In 1998, if you have income of less than $100,000, you can take your traditional IRA and roll it into a Roth IRA. This is a big step, to be considered very carefully. A lot depends on your age, your rate of investment returns and your tax bracket - both now and when you expect to withdraw the money. The longer you can keep the money invested, and the higher the rate of return, the more favorable the Roth IRA is over the traditional IRA.

But if you want to roll it over into a Roth plan, do it this year. While you must pay the tax on the taxable amount in your traditional IRA, you will be able to spread out the payments over four years. After 1998, if you roll over a traditional IRA into a Roth IRA you will have to pay all the tax in a single year.

Contributions to the Roth IRA are phased out for joint filers with adjusted gross incomes between $150,000 and $160,000, and for individuals with adjusted gross incomes of between $95,000 and $110,000. In addition, unlike traditional IRAs, there are no mandatory withdrawals required to begin at age 70╜.

This is a great tax year if you have children you're planning to send to college. With these new plans, you can contribute up to $500 per year, per child younger than age 18, into a non-deductible IRA account. All interest, dividends and capital gains grow tax-free within these accounts as long as the funds are used to pay qualified higher education expenses. Those include tuition, fees and room and board.

You can invest your contributions in all the usual places: bank certificates of deposit, bonds (government and corporate), common and preferred stocks, unit investment trusts and mutual funds.

All assets must be withdrawn from the account before the beneficiary reaches age 30. However, you are allowed to roll over the unused balance from one child's account into another child's account (within the same family) without incurring any tax or penalty.

Be aware that all withdrawals not used to pay qualified higher-education expenses are subject to ordinary income rates plus a 10 percent penalty. This 10 percent penalty is waived, however, if the beneficiary becomes disabled or dies.

Eligibility for these accounts phases out for joint filers with a modified gross income of between $150,000 and $160,000, and for single filers with a modified adjusted income of between $95,000 and $110,000.

The new law also created a "kiddie tax credit" for families earning $18,000 or more with children under age 17. The amount of the credit is $400 in 1998 and $500 in 1999. These credits will be factored before any computation for the earned income credit and will be refundable even if no tax is due. However, you will not get any credit in excess of what you paid in payroll taxes less any cash from the earned income credit. If you have three or more children, you get an additional credit.

The credit will be phased out for joint returns with earnings greater than $110,000 and singles with earnings of more than $75,000. For every additional $1,000 or part thereof that a couple earns, the tax break is reduced by $50.

These new credits apply to expenses paid after Dec. 31, 1997, for academic periods beginning after that date. The credit (also known as the Hope Scholarship) is equal to up to $1,500 (100 percent of the first $1,000 and 50 percent of the next $1,000) a year during the first two years of post-secondary education for qualified tuition and related expenses.

For the third and fourth years, the credit will be 20 percent of up to $5,000 in tuition. For years after 2002, eligible expenses are increased to $10,000.

To qualify, the student must carry at least half the full-time workload and must never have been convicted of a felony drug offense. The phaseout here is from $80,000 to $110,000 for couples and from $50,000 to $75,000 for singles. Both your eligible expenses and these income limits will be indexed for inflation starting in 2001.

Under prior law, no deduction was allowable for personal interest, including interest on student loans. The new law allows student interest deductions, even if you don't itemize, of $1,000 in 1998, $1,500 in 1999, $2,000 in 2000, and $2,500 in 2001 and after.

This education interest deduction will be phased out between $60,000 and $70,000 for couples and between $40,000 and $55,000 for individuals. These income limits are indexed beginning in 2003.

The above represent only some of the major tax changes taking effect in 1998. Your awareness of how they work will allow you to minimize the tax pain you must endure each spring. Use them. They keep tax dollars in your pockets.