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I have small business . TT let me contribute to 401K solo and SEP IRA. Why it did not allow me to contribute to ROTH IRA saying I do not have earned income.?

Forum|Forum|1 year ago
April 25, 2024
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I do not have any other employees. I'm the only employer and employee.

TurboTax Online

Best answer by dmertz

Deductible self-employed retirement contributions reduce the net earnings available to contribute to a Roth IRA, so by contributing all of your net earnings as deductible 401(k) and SEP contributions there is nothing left to contribute to the Roth IRA.

Note that if your SEP IRA uses the Form 5305-SEP plan agreement, you are not permitted to currently maintain any other qualified retirement plan (per the SEP plan agreement). Because the employer contribution to the 401(k) plan and to the SEP plan would be the same amount, it generally makes no sense to make the employer contribution to the SEP plan instead of making it to the 401(k) plan. A prototype SEP plan that spells out the combined contribution limits would be needed to be able to make contributions to both the 401(k) and the SEP plan.

D

dmertzAnswer

Employee

Deductible self-employed retirement contributions reduce the net earnings available to contribute to a Roth IRA, so by contributing all of your net earnings as deductible 401(k) and SEP contributions there is nothing left to contribute to the Roth IRA.

Note that if your SEP IRA uses the Form 5305-SEP plan agreement, you are not permitted to currently maintain any other qualified retirement plan (per the SEP plan agreement). Because the employer contribution to the 401(k) plan and to the SEP plan would be the same amount, it generally makes no sense to make the employer contribution to the SEP plan instead of making it to the 401(k) plan. A prototype SEP plan that spells out the combined contribution limits would be needed to be able to make contributions to both the 401(k) and the SEP plan.

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Vladimir101Author

So, I need to contribute to ROTH IRA first, and then what is left to 401k?

DMarkM1

Doesn't have to be first you just need some earnings left to contribute to a Roth. Keep in mind there is a contribution limitation based on your income. Also, your total contributions to Traditional and Roth IRAs is limited to 6500 (7500 if age 50 or over).

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