He is self employed, his business brought in over 1mil but his AGI on his tax return is 42k. He has no retirement plan in place currently. He is close to 50 years old.
i was looking at
1.) traditional IRA
2.) roth IRA
3.) self 401k?
which one would be best? simplicity please. I just don't want to help him make one then deal with some type of tax issues later down the road.. from my understanding if for example he does Roth IRA, when he goes to file his taxes at the end of the year what actually happens vice versa with a traditional IRA? Is fidelity going to mail him some type of document to enter his contributions and lower his taxable income with the traditional, and what happens with roth for example???
please help me help my dad open a retirement account!! he is almost 50
byu/Helpful_Explorer2857 inpersonalfinance
Posted by Helpful_Explorer2857
7 Comments
So it sounds like you don’t know how any of these accounts work. With that being said, your dad, someone who already pays taxes and operates a 7 figure business, should figure out how to do this himself.
It sounds like he has no stock or bond investments at this time and relatively little in his personal bank accounts, but significant business assets. Is that correct?
Does he have a CPA?
It sounds like he would be eligible for a Roth IRA, but that would only allow him to invest $100k over the next 15 years.
I think a solo 401k is probably necessary. However, in order to fund that he would likely have to increase his own salary. This is why I think he should meet with his CPA (if he has one) before doing anything.
>which one would be best? simplicity please.
The one that your father chooses based on his full financial situation and retirement goals. Either he’s handling the financials and taxes for his business himself, and can absolutely figure this out himself, or he pays someone to do that and they can help him.
He needs to make an appointment with a place like Fidelity and make a plan with a professional. The planning conversations don’t cost a fee.
When you make IRA contributions, the sponsor sends an IRS Form 5498 each year detailing the information. In the case of a traditional IRA, you can deduct the contribution from your taxable income, thus reducing your tax liability. In the case of a Roth IRA, you don’t get a deduction, but tax software will ask for the information to see if you might qualify for the “Saver’s Credit,” a tax credit for certain low income workers.
If that AGI is what his income tax AND self-employment tax is based on, it’s unlikely that any of his eventual Social Security benefits will be taxable. Which means he can pull up to $15K per year (under today’s laws) from a traditional IRA and pay no taxes on the withdrawal. He’s in the 12% income tax bracket, so making a $7500 annual contribution to a traditional IRA will reduce his tax bill by $900. In his situation there’s no advantage to a Roth IRA, since it does not give the immediate tax savings.
It would be a good idea for him to make an account at [SSA.gov](http://SSA.gov) to see that they have his earnings information correct, and to see what their benefit estimator says.
Solo 401(k)s are a thing, but geared towards self employed workers who want contribution limits as high as $74K. If your dad is living on $41K that’s not really for him – the $7500 limit on IRAs is probably going to be a stretch.
if all your life as a self employed person you “pay yourself” say $40k a year to somehow avoid the govt or in a attempt to stick it to IRS…..And you actually dont save anything for retirement.
then your social security is going to be based on that $40k salary. that amount is quite small.
1m$ in revenue but needs a reddit post for help.