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SEP IRA AND REGULAR OR ROTH?


Guest JOE KOZO
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Guest JOE KOZO

CAN A SELF-EMPLOYED INDIVIDUAL CONTRIBUTE TO A ROTH(OR REGULAR)IRA IN ADDITION TO A SEP(SIMPLE)IRA? IN OTHER WORDS FOLLOWING THE GUIDELINES FOR A SEP-IRA ALSO CONTRIBUTE $2,000 TO A ROTH. THANK YOU

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A self-employed person can contribute to a Roth IRA as long as they have net earned income and it is less than the threshold amounts ($110,000 for single taxpayer, $160,000 for married taxpayer filing joint return and less than $10,000 for married taxpayer filing separately) Participation in an employer sponsored retirement plan does not come into the picture with a Roth. For the traditional IRA, you can contribute as long as you have net earned income and are below age 70 (calendar year when you attain age 70 1/2). Again, participation in an employer sponsored retirement plan does not come into play until we go to determine whether your traditional IRA contribution is deductible or not.

If you are a participant in a SEP or a SIMPLE, your traditional IRA contribution may not be deductible if your adjusted gross income is too high - over $40,000 for a single, over$60,000 for married/joint or over $10,000 for married/separately. If you make a nondeductible traditional IRA contribution, make sure to report it on a Form 8606.

Isn't it a little late to be talking about this? Or are we planning ahead? If so, the limits for deducting a 1999 traditional IRA contribution are $41,000 for single, $61,000 for married/joint and $10,000 for married/separately.

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One more thing. The thresholds are based on your modified adjusted gross income, not just your net earned income. You must have some income from your own personal services in order to be elgible to contribute to an IRA but your MAGI (which also includes other types of income such as dividends, interest, etc....) must be below the limits. Ok, maybe you better just go see your accountant to make sure.

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