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BUSINESS BASICS CHANNELS 
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Roth IRAs It’s that taxing time of year again, and it can be really rough on the small business owner. Not only do you have to pay the taxes that everyone else does, but you also get self-employment taxes, business property taxes and higher rates in general for the privilege of being your own boss. If you’re just starting out with your business, chances are that you haven’t really spent too much time on how you’re going to save money besides putting it back into the business. Enter the IRA, one tax-advantaged investment that you should consider as part of your overall planning. Of particular interest is the Roth IRA. It is unlike the conventional IRA because contributions to the account are not tax deductible in the year they’re made. However, your earnings on a Roth IRA are only taxable when a withdrawal is not a "qualified" distribution. So you get the power of compounded interest with tax free earnings, a powerful combination that can add up to a big difference in your savings. What are the requirements to make a qualified withdrawal? It’s got to be made after you reach the age of 59 ½, or after you’re disabled or (this is a very nice feature) up to $10,000 can be used to buy your first home. All you’ve got to do is have the money in the IRA for at least five years before you withdraw it for that down payment. If you should die, your beneficiaries can get the money tax-free. If you don’t wait at least five years, though, those earnings will be taxed and you might even have penalties to pay as well. How much can you put in your Roth IRA? For most people, it’s $2,000 minus the amount that you put in a traditional IRA. A Roth IRA is better in several ways, though. You can continue to make contributions even after you’ve reached the age of 70 ½, unlike traditional IRAs. You are also not required to take distributions from your Roth IRA at age 70 ½, so you can continue accumulating the money there, tax free, until you need it. Or you can leave it for your heirs. There are income limitations on the Roth IRA. If you have a fairly high adjusted gross income ($95,000 -$110,000 for a single and $150,000 - $160,000 for a married couple filing jointly), the $2,000 limit is phased out and you will be unable to fund a Roth IRA. Okay, you’re saying, this sounds good. But what if I’ve already got an IRA? Is there any way to get those benefits with the money I’ve already got saved? Well, it turns out that you can move your IRA money into a Roth IRA if your adjusted gross income for the year is $100,000 or less, although you’ll be taxed on it. You do need to meet time requirements and, if you are married, you must file jointly in order to make the conversion. If you’re married, filing separately, you cannot change. If you have any children working in your business, they can fund a Roth IRA out of their earned income. It can even be used, on a limited basis, to pay for educational expenses. For those of you who still have regular employment as well as a business, you can fund a Roth IRA even if you have an employer-sponsored retirement plan as long as you meet the adjusted gross income requirements. If this makes you think that a Roth IRA contribution for 1999 would be good for you, you must make it before April 17th. Unlike a traditional IRA, getting a filing extension does not extend the time allowable for making the contribution. -Cynthia Nemeth-Johannes |
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