Author Topic: New to planning for retirement - Roth IRA Question  (Read 644 times)

mike437

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New to planning for retirement - Roth IRA Question
« on: April 06, 2019, 09:43:29 PM »
Greetings everyone. I just stumbled across this forum and certainly plan to dive into it a bit more. However, I'm looking for some advice on my particular situation. I'm a newlywed 30 year old who -- up until recently -- has only brought in income in the mid to high 30s. I've changed careers and my new path has definitely taken off. I'll probably be somewhere in the low to mid 200s for 2019. I want to start planning for retirement before I get too used to the new level of income.

2018: I was 1099'd at about 41k. I'll have more than that in deductions so I'll net 0 with some to carry over into 2019. (I won't be so lucky for 2019).
          My wife only worked for the first quarter of 2018 as a traveling nurse so much of her income was per diem, and her earned income from wages on her W2 was around 7800.

2019: I'm now a co-owner of our company which is an S-Corp. My salary will be around 50k (average for my industry) and the rest will be distributions.
          My wife is graduating to be a nurse practitioner in a few weeks. If she starts working in June or July, she will probably bring in around 50 or 60k this year.

Now for my question: I have until April 15th to start a Roth IRA and contribute to 2018. I would like to contribute the max. From what I've been reading, I can contribute the max for my wife since she had earned income. Am I able to contribute the max for me? As I currently understand it, the answer is no since I didn't have any earned income due to the deductions. I just want to clarify. Moreover, should I keep any distributions for me under the salary cutoff for the Roth IRA and leave the money in the company?

Thanks in advance for any advice. I'm looking forward to learning more through this forum and hopefully one day being an active member and passing along what I've learned.

cincystache

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Re: New to planning for retirement - Roth IRA Question
« Reply #1 on: April 06, 2019, 10:34:21 PM »
Welcome to the forum! Congrats on the fantastic increase in income. In addition, congrats to your wife on graduating from nurse practitioner schooling. I'm surprised her salary is only going to be 50-60k, I thought they made closer to 80-100+?

Anyways, for 2018, based on the numbers you gave, you should be able to contribute 5500 to your Roth IRA and 5500 to your spouse's Roth IRA. You are confusing earned income with taxable income. Even though your net taxable income was zero, you still earned at least 5500 but not more than 189,000 making you eligible for a Roth. Furthermore, you can contribute to your spouse's IRA if you are married filing jointly regardless of whether or not he/she had any earned income.

Here's the better piece of advice... I recommend you hire an accountant going forward. No offense, but you obviously don't understand pretty basic tax concepts at this point in time and coming into a super high income situation with an S-Corp, you are better off paying a CPA a couple thousand bucks to optimize your taxes than spending your valuable time working on it. Again, I'm not trying to offend you and I'm sure you could learn this stuff if you really wanted to but you are better served focusing your time and effort on growing your business. Your household income will probably top 300k in the near future and with an S-corp involved it makes a lot of sense to get a professional involved. MMM himself hires an accountant and his income isn't that much higher than you and your wife's combined...


mike437

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Re: New to planning for retirement - Roth IRA Question
« Reply #2 on: April 06, 2019, 11:02:03 PM »
Thanks for the quick reply. No offense taken whatsoever ó itís not like I donít already know how clueless I am about all of this (hopefully not for too much longer).

When I mentioned my wifeís income, I meant just for 2019 since she will be starting halfway through the year. I think she will be closer to 100 annually. She better be anyway... she was making 55k base as an RN.

We hired an accountant, but Iíve been getting some mixed information from him and might start looking for someone new unfortunately.

MDM

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Re: New to planning for retirement - Roth IRA Question
« Reply #3 on: April 07, 2019, 01:24:26 AM »
2018: I was 1099'd at about 41k. I'll have more than that in deductions so I'll net 0 with some to carry over into 2019. (I won't be so lucky for 2019).
          My wife only worked for the first quarter of 2018 as a traveling nurse so much of her income was per diem, and her earned income from wages on her W2 was around 7800.
Anyways, for 2018, based on the numbers you gave, you should be able to contribute 5500 to your Roth IRA and 5500 to your spouse's Roth IRA. You are confusing earned income with taxable income.
Depends on whether those are Schedule A itemized deductions, or Schedule C business expense deductions.  If Schedule A, cincystache's comments apply.

If Schedule C, then $7800 is the maximum for the total contributions from both of you.  See https://www.irs.gov/pub/irs-pdf/p590a.pdf: "If  you  are  self-employed  (a sole  proprietor  or  a  partner),  compensation  is  the  net earnings from your trade or business (provided your per-sonal services are a material income-producing factor) re-duced by the total of:
ēThe deduction for contributions made on your behalf to retirement plans, and
ēThe deduction allowed for the deductible part of your self-employment taxes."

mike437

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Re: New to planning for retirement - Roth IRA Question
« Reply #4 on: April 07, 2019, 06:51:21 AM »
If Schedule C, then $7800 is the maximum for the total contributions from both of you.

Thanks for the additional info. We just married in February, so 2018 is being filed individually. I suppose that would mean $5,500 is the max for her and I canít contribute since my Schedule C deductions will exceed my 1099 income?

MDM

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Re: New to planning for retirement - Roth IRA Question
« Reply #5 on: April 07, 2019, 12:02:31 PM »
If Schedule C, then $7800 is the maximum for the total contributions from both of you.

Thanks for the additional info. We just married in February, so 2018 is being filed individually. I suppose that would mean $5,500 is the max for her and I canít contribute since my Schedule C deductions will exceed my 1099 income?
You suppose correctly.