Roth IRAs and IRA Contributions: Today's Slott Report Mailbag | Ed Slott and Company, LLC

Roth IRAs and IRA Contributions: Today's Slott Report Mailbag

By Sarah Brenner, JD
IRA Analyst
Follow Us on Twitter: @theslottreport


Question:

Good Morning,

I have a question in regards to Roth 401k vs Roth IRA. Can you roll over your Roth 401k to a Roth IRA to avoid the RMD that must be taken when the individual reaches 70 1/2 with a Roth 401k?

Thank you.

Carol


Answer:

Hi Carol,

You are right that that the required minimum distribution (RMD) requirements are an important difference between Roth 401(k)s and Roth IRAs. You must take RMDs from your Roth 401(k) during your lifetime. However, your Roth IRA is not subject to any RMD requirements while you are alive. Many individuals do exactly what you are suggesting and roll over the assets from their Roth 401(k) to their Roth IRA in the year before their first RMD is due. By doing so, they avoid RMDs from the Roth 401(k) during their lifetime. It is important to remember, however, that inherited Roth IRAs are subject to RMD requirements. Your beneficiaries will still need to take RMDs from the Roth IRA they inherit from you.


Question:

Hello,

I was thinking of taking a part time job mostly so I would be able to fund an IRA. I also will have a small business reported on Schedule C that may end up with a loss, maybe greater than the income from the part time job.

Does such a loss reduce an IRA contribution I was hoping to make from the part time job?

I have no other retirement plans or income.

So my question is if the part time job necessarily gives me the income needed to make a contribution in my situation?

Does it make a difference if it is a Roth or non-deductible contribution? I think others have similar situations, so I hope you can help.

Thank You,

Joe


Answer:

Hi Joe,

Good news! To make a Roth or traditional IRA contribution, either you or your spouse must have earned income or taxable compensation. This could be self-employment income, or income you earn as an employee. If you are earning wages as an employee from your part-time job, you can base your IRA contribution upon those earnings. If your Schedule C is showing a loss that does not count against your wages as an employee and will not affect the amount you can contribute to an IRA based on those wages.

 


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