Can I contribute this much to my Roth ira and Roth 401k?

[summer2007]

If I make 13,000 in profit in my business can I contribute $4000 to a Roth IRA and $9000 to my Roth 401k?

That is the the way I understood it but I can't find it in writing anywhere.

Thanks

Jim

 

[Martha]

You are basically right, but you will have to go through various exercises to figure out your net earnings after expenses and what is the max you can contribute to the IRA and 401k.

The applicable publication are Publication 560 (2006), Retirement Plans for Small Business
and Publication 590 (2006), Individual Retirement Arrangements (IRAs). The first publication will tell you the max you can contribute to the 401k. Be sure to look at section 2 of publication 590 and the worksheet for figuring out you max Roth IRA contribution after you contribute to your Roth 401k.

 

[summer2007]

Thanks Martha

I have put so much time into trying to figure out taxes and I still don't understand it.

I will be cashing in some savings bonds and I would like to put some of that money into a roth IRA or 401k. My problem is I have so many deductions I can take that it lowers my earned income a lot. I can't find the answer to this question either. Just wondering if I can NOT take my deductions to have a higher earned income? Can I just pay taxes on my gross income.

I know most people look to take as many deductions as possible but in my case I think I would be better off just paying the taxes and and being able to put the money away in a retirement account. I will have a bunch of money from savings bonds that I would like to just put right into a roth IRA and 401k.

Jim

 

[Martha]

Understandable. I think that a short sit down with an accountant would help.

On your thread about deductions the one thing that was pointed out was that if you do not deduct depreciation the IRS will nevertheless assume you did and you may in the future have to pay tax on an "recapture" of that depreciation. Otherwise, not deducting things like mileage expenses or supplies or shouldn't be a problem, but I would visit with an accountant. It will give you peace of mind and someone to rely on.

Do you already have a solo 401k with a Roth option? You could put your entire net income into the 401k if we are talking only about $13,000 in net income and then you will not have to mess with the Roth IRA.

 

[summer2007]

Thanks Martha

I have had nothing but problems finding a good accountant!

I had a guy that was a cpa file my taxes and I put them in to be filed in the beginning of March. So 2 days before the tax due date I still don't have the taxes done. So I call in and end up having to go out and pick them up the day that they are due to be mailed! The same guy also billed me incorrectly and would not return his calls for over a month.

So last year I thought I'm going to try someone else. I went to see a lady cpa that lives close to me. She charged less. She then is telling me I owe $400 to the State per year for a llc licence registration she gives me these forms to fill out and thinks I should probably pay up for all the years I didn't pay this fee. I called the state and found out she was dead wrong and I didn't owe anything this fee only applies to doctors and lawyers and other professionals.

I just talked to her a little while ago and she was telling me I can only contribute 15% to a roth 401k. I thought for sure I could contribute more than that so that is why I have been looking into it. I don't think this lady knows what she is doing and I'm looking for yet another accountant. If I would have did what she said last year I would have paid a lot of money that I didn't even owe because she dosen't know what she is talking about!

I called around for accountants and out of lets say 15 accountants in my area only 3 were not either already out of business or not taking other clients or just had a voice mail that they never returned.

I figured that going with an accountant that was just doing it by herself or himself would be a lot better than going with a big firm like an H&R Block but maybe I'm wrong!

So at this point I have an accountant but I feel like I have to figure it all out for myself anyway.

Jim

 

[Martha]

Well crap!

Maybe go to a bigger town?