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"Self employed" … transferring money to IRA
Anyone have any advice or resources on how someone who is self employed can (legally) transfer money from a business account directly to a (traditional or Roth IRA). I use Bank of America as my business account, and I have a Roth IRA through Vangaurd and a tradional IRA that I rolled over from a 401(k) through Scottrade.
Apparently, I can just set-up a direct tranfer from BofA to either brokerage, but I’m guessing there is more to it than that. I know if I use the Roth, then I have to claim what I transferred as income on my personal taxes. I’m not sure about the Traditional IRA, though. Since that’s “tax free”, can I just send money to that account (up to the limit) and not worry about tax implications?
What are the pitfalls and tax implications? What is the IRS going to be looking for at the end of the year? Anyone know?
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5 Replies
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Here is what Dave Ramsey says about it:
http://www.daveramsey.com/index.cfm?event=askdave/&intContentItemId=9766
http://www.daveramsey.com/index.cfm?event=askdave/&intContentItemId=9766
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I’m trying to avoid the government withholding taxes on what should be a tax free transaction. If I simply deposit money to my traditional IRA from my personal bank account, then the government withholds taxes on that money until April 15th when I get it all back because deposits into a traditional IRA are tax deductable. So, the government gets to hold my money for 4 to 16 months when I could have had that money in my retirement investment account.
I’m trying to cut down the process of (business account -> paycheck -> personal account-> personal investment account) to (business account -> personal investment account).
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Any IRA, you will be paying taxes on the money eventually. A traditional, you pay the taxes when you withdraw the money. A Roth, you pay tax on your deposit up front and that money can be withdrew tax free. Unless you plan on being poor for a few years before hitting your IRA, odds are you are in a lower tax bracket now than you will be at retirement. So you would pay less in taxes now.
Read some of what Dave has on those pages. Really makes sense. And if I am going to take advice on money, I would prefer to listen to someone rich like him than someone poor like me. He knows the road to money, I am still trying to find that road.
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Yeah, I see he recommends Roth IRAs. I like Roth IRAs the best. I started a Roth IRA when business was booming and I was getting overtime and bonuses left and right (2003ish), and I maxed it out for 4 years. Since then I’ve had hours cut, pay cut, and eventually layed off, and now trying to get a business started in a recession that has obviously hit any business related to real estate very hard. I had a 401(k) from the former employer that I rolled over into a traditional IRA.
I haven’t funded my retirement savings in 3 years and I want to start again with small (100-200/mo contributions if I can afford them). Now, by my way of thinking, while money is tight I might as well postpone the taxes (traditional IRA) and try to get the most “bang for my buck” in the near team. I figure there’s got to be a way to avoid the tax witholdings using my existing retirement accounts. I don’t want to set up a 401(k) or a SEP IRA and have a 3rd retirement account.
And down the road, if business improves and I’m more confortable with my finances, I’ll probably go back to the Roth IRA which make it easier since it’s post-tax investing.
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You didn’t state what your business form was, that will make a difference. I’m sure there’s a way as before our partnership we had money deducted before our wages. I’d first check with Vanguard or Scottrade. It may take some digging to find a number for a real person (write that number down). My guess is that you’ll probably have to set up another account but it will be linked to the other account at the same brokerage. We have a SIMPLE account through Schwab, we send a business check along with a form that shows how much to each person’s account. The check’s deposited first into the business account and then everything is transferred to the individual account. There may be rules depending on the type of account so I’d recommend checking out the IRS website (they have a retirement plan booklet you can download) and then if you have questions take a day when you have lots of patience and phone the IRS help number on a speaker phone (so you can do other things while on hold).
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