IRA Questions

[caseyhowie]

I have two questions. My wife has a SIMPLE IRA and has done a little work this year as a sole proprietor. Since she did not reach the max income for contribution, I want to contribute her entire (100%) of income to the SIMPLE IRA. My question is, can she also contribute an additional 3% as the employer matching contribution, or must the total of both not exceed the total income earned?

The second question has to do with a ROTH. Can she also contribute to a ROTH independent of the SIMPLE IRA?

[eridanus]

Quote:

Originally Posted by caseyhowie The second question has to do with a ROTH. Can she also contribute to a ROTH independent of the SIMPLE IRA?

Yes, as long as she has enough earned income to do both.

[eridanus]

Quote:

Originally Posted by caseyhowie I have two questions. My wife has a SIMPLE IRA and has done a little work this year as a sole proprietor. Since she did not reach the max income for contribution, I want to contribute her entire (100%) of income to the SIMPLE IRA. My question is, can she also contribute an additional 3% as the employer matching contribution, or must the total of both not exceed the total income earned?

Doesn't look like she can do both.

"Self-employed individual compensation. For purposes of the SIMPLE plan rules, if you are self-employed, your compensation for a year is your net earnings from self-employment (Schedule SE (Form 1040), Section A, line 4, or Section B, line 6) before subtracting any contributions made to a SIMPLE IRA on your behalf.

For these purposes, net earnings from self-employment include services performed while claiming exemption from self-employment tax as a member of a group conscientiously opposed to social security benefits."

Publication 590 (2007), Individual Retirement Arrangements (IRAs)

(I only included the last sentence because it's intriguing.)


Edit: On further reflection, the above has little to do with your question. Well, the page is there.

[Martha]

Quote:

The second question has to do with a ROTH. Can she also contribute to a ROTH independent of the SIMPLE IRA?

From publication 590:

Roth IRAs and traditional IRAs. If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit. This means that your contribution limit is the lesser of:

• $4,000 ($5,000 if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or
• Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.

See my signature for CYA.

[ERD50]

Quote:

Originally Posted by Martha From publication 590: Roth IRAs and traditional IRAs. If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs.

Maybe this is why I struggle with taxes so much. That sentence from the IRS is nearly incomprehensible to me. Am I the only one?

OK, I read it a half dozen times, and I think I get it - but do they have to phrase it so t seems like it is contradicting itself? To me, that sentence structure says "it is the same except different". How does that help someone in the dark?

Is this what they are trying to say?

1) You can make contributions to both a Roth and a Traditional IRA.

2) The limits for your Roth contribution are set by:

2a) The limits for your Roth alone, minus...
2b) Any contributions made to any other non-Roth IRAs

Maybe it's just me, but the IRS wording makes it 100x harder than it is.


As a side note, I really wonder what the goal was. Is there really a reason for these different savings plans? Or did they just seem like a good idea at the time? I'd bet it is counter-productive. The people who need these the most probably get confused when people start comparing Roth, Trad, college savings plans, pre-tax, post-tax, paper or plastic, and just give up and go shopping instead.

There must be more effective ways to encourage people to save money. Throwing pages of hard to understand, boring, and changeable rules out there sure isn't a big incentive for most people I know.

-ERD50

[Martha]

I agree with you ERD. Keep it simple. Have one type of defined contribution retirement plan. Anyone can contribute up to a certain maximum. Only options are whether it will be pre tax or post tax. Make it like an HSA that goes wherever you go. Simple.


This is one area of the tax code that could easily be simplified.

[ERD50]

Quote:

Originally Posted by Martha I agree with you ERD. Keep it simple. Have one type of defined contribution retirement plan. Anyone can contribute up to a certain maximum. Only options are whether it will be pre tax or post tax. Make it like an HSA that goes wherever you go. Simple. This is one area of the tax code that could easily be simplified.

There are many areas that could be easily simplified (although I'm more in favor of tossing it and starting over, with an actual "architecture", rather than trying to patch a crumbling building that was patched together from the start).

In 2005, a commission put together a pretty good list of areas where redundancy and over-complication could be fixed, w/o the pain of a complete overhaul. I think they did a pretty good job, considering the task:

http://www.taxreformpanel.gov/final-...orm_ExSumm.pdf

They tackled this subject too:

The Current Tax System
Retirement savings plans IRAs, Roth IRAs, spousal IRAs – subject to contribution and income limits


How the Tax Code Would Change

Defined contribution plans Consolidated into Save at Work plans that have simple rules and use current-law 401(k) contribution limits; AutoSave features point workers in a pro-saving direction (Growth and Investment Tax Plan would make Save at Work accounts “prepaid” or Roth-syle)

- and a whole lot more.


-ERD50

[TromboneAl]

I liked this line on the 1040:

If line 38 is over $119,975, or you provided housing to a Midwestern displaced individual, see instructions.

[ERD50]

Quote:

Originally Posted by TromboneAl I liked this line on the 1040: If line 38 is over $119,975, or you provided housing to a Midwestern displaced individual, see instructions.

heh, heh. As I was trying to decipher some of the language in this tax code, the comedian in me kept thinking about starting a thread to collect arcane little tax code instruction tidbits. I may do that yet.

I kinda "liked" (as in "hated") this one:

http://www.irs.gov/pub/irs-pdf/i8615.pdf

IF a child was born on....... THEN, at the end of 2008, the child is considered to be....

January 1, 1991 ......... .........18*
January 1, 1990 ......... .........19**
January 1, 1985 ......... .........24***

Hmmm, so if you are born Jan 1 , 1991 (like about 1 out of every 365 people born that year), you would normally celebrate your 18th birthday on Jan 1, 2009, right? But that "normal" definition isn't good enough for Congress. No, they seem to feel there is a need to REDEFINE the traditional meaning of the word BIRTHDAY. They want to move up your birthday by one day, but only for 1/365 of the population.

WTF?

Someone explain to me why our members of Congress should be spending time redefining the term BIRTHDAY for some small segment of the population. Don't they have better things to do, like file their taxes correctly, or manage the affairs of the nation?

-ERD50

[ERD50]

Quote:

Originally Posted by TromboneAl I liked this line on the 1040: If line 38 is over $119,975, or you provided housing to a Midwestern displaced individual, see instructions.

Reminds of that silly line: " Do you walk, or take your lunch to work?".
-ERD50

[Sarah in SC]

To be called a SIMPLE, that program is the one that is the hardest for average taxpayers and business people to understand. I work with them infrequently, and still have to consult an actuary to really figure out how it applies in a given circumstance.

Why a Midwestern displaced individual, I wonder?

[ERD50]

Quote:

Originally Posted by Sarah in SC Why a Midwestern displaced individual, I wonder?

Because Congress is busy micro-managing our affairs, while they miss the big picture. HAd to do with the flooding in the midwest. I thought we already had charitable deductions, federal disaster loan programs, etc in place?


Tax Law Changes Related to Midwestern Disaster Areas
FS-2008-27, December 2008

I can't imagine how many hours went into that code. Choosing the specific counties, dates, rules, regs. I imagine many hours were spent by reps making sure that their people got covered. I think you can track a bill through Congress on the .gov site, I'm not gonna do it, I'll just get mad.

One thing I'd like to see - if Congress insists on these little programs, at least keep them out of the main-stream tax code. They could publish a list of "rebates" or whatever, and if you think you qualify, get the paperwork and fill it out. That way, the 99% of people NOT affected don't have to slog through all the ifs, and, and buts, for all these exceptions. Then, maybe the tax SW places could get the tax programs out in time.

-ERD50

[Allegany]

Martha, here is my question. I fully funded my 2009 Roth IRA as I'm anticipating making more than the maximum which for over 50's is $6,000. One of my employers, I work two part-time jobs, is considering starting a Simple IRA program for the company. What is the limit that I can contribute to this account? Currently I understand that a Simple Ira can be funded up to 11500 regular plus an additional 2500 for over 50's. My other part-time employer is a local government and I'm in the state pension plan. Does this impact my ability to contribute? Thanks

[Martha]

14000 max employee for Simple IRA, less the 6000 you contributed to the Roth, leaves 8000 you can contribute to the Simple. Whatever the employer contributes doesn't count.

See my signature and see the publication I linked to above.

[TromboneAl]

Quote:

Someone explain to me why our members of Congress should be spending time redefining the term BIRTHDAY for some small segment of the population.

Right. This is typical. Give me two weeks, and I could eliminate about half of the complexity of tax returns.

First I'd take out the "Contribute $3 to the presidential campaign" line."

Next, AMT is gone. We're not going to have two separate ways of calculating your tax. Adjust the rates if we need to, but two parallel systems is silly.

etc.

[ERD50]

Quote:

Originally Posted by TromboneAl Next, AMT is gone. We're not going to have two separate ways of calculating your tax. Adjust the rates if we need to, but two parallel systems is silly. etc.

Yep, great example of "we added all these rules, but since they are so complex and created 'loopholes', well, instead of changing or eliminating those rules, we will add a whole bunch more rules".

If I were President, I'd tell Congress that I wasn't going to sign anything that added to the tax code unless that bill also removed 100 pages for every one they added.

-ERD50

[harley]

Quote:

Originally Posted by ERD50 I imagine many hours were spent by reps making sure that their people got covered.

My guess would be zero. You don't actually think the congress critters actually write this stuff, do you? I seriously doubt they even read it. Probably some midwestern staffer whose carpet got wet put it in and off it went.

[ERD50]

Quote:

Originally Posted by harley My guess would be zero. You don't actually think the congress critters actually write this stuff, do you? I seriously doubt they even read it. Probably some midwestern staffer whose carpet got wet put it in and off it went.

That's true. Seems I've heard refs to 650 pages - how could they slog through even half that in the time they have?

But the hours are spent - if not directly by them, then by their underlings, and they could all be better utilized, IMO.

heh, heh - it would be interesting to have Congress take a pop quiz on the bill right after they signed it. I doubt their score would exceed their approval rating

-ERD50