roth ira qualifications

[Guest randse]

I am looking into starting a roth but I know there is an income limit. I am currently just under the limit but I will be getting married in 2 months, which will put me over the limit. In a year or two, I plan on leaving the workforce which may put my husband and I under the income limit. Is a roth the right choice or is there another retirement account that I don't know about that may be better for my situation?

[John G]

You left out a lot of background material that might help you get a better answer. What is your combined income after you marry? Do you work in the private sector, government or are you self employed. Ages?

There are different income thresholds for Roths that depend upon marital status and income. You don't mention your likely joint income, but if it throws you over the top of the higher threshold for "married filing jointly" in 2004 you can't do a Roth. Filing separately is worse.

Other options: company 401k and 403b plans, Keogh if you are sell employed, pension / profit sharing plans (especially if you are running your own business. If you can't find anything that matches your circumstances, then you might want to consider taxable investments where you can build assets and only pay the long term capital gains rate. Building equity through home ownership may be attractive.

Future tax sheltered options - in two years a lot of things can change. There are proposals working their way through Congress to supersede the various IRAs with a single account with $5k contribution amounts. The answer to your two years from now question is probably best answered two years from now.

[John G]

Thanks for the private transmission of some additional data. You are correct with your assumption that you will not qualify for the Roth.

BUT.... Don't walk but RUN to your accountant this week and talk about the various non-Roth options that "private contractors" or "consultants" have. There are multiple options, some depend upon if you file a Form C or classify your activities as a Sub S or some other format. There are ways to set aside approximately 25% of your income in a tax sheltered account. More money each year than a Roth, but not exactly the same tax treatment.

My wife started a sub S corp in Virginia many years ago (various business services) and a few years later was doing well enough to create a pension/profit sharing account (originally under Schwab's umbrella, at minimal annual fees) and then started to put in a very large chunk of her earnings since we did not need it in the good years.

If you don't have an accountant, time to find one. Talk to atleast three different ones. Get advice from other folks that own businesses.

Good luck with these matters.