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Bill
Bill, Financial Advisor
Category: Finance
Satisfied Customers: 3077
Experience:  EA, CEBS - 34 years experience providing financial advice
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Im wondering about investing in IRAs. Id like to invest over

Resolved Question:

I'm wondering about investing in IRAs. I'd like to invest over 5K this year, which is the limit for investing in a simple IRA. I know that you can have more than one IRA and cannot invest more than 5000 between all of them. Does this only mean that any additional money you invest is subject to your regular rate of taxation and not sheltered by the IRA blanket.

What I really want from an IRA is the ability to not be taked on the gains in my IRA. So in other words if I put 20K into an IRA, yes only 5K will be deductible for the current year, but if I have invested 15K excess will the interest on that money be protected from Capital Gains tax becasuse I have it in an IRA?
Submitted: 3 years ago.
Category: Finance
Expert:  Bill replied 3 years ago.

Bill :

If you exceed $5,000 in a year then the excess amount will be subject to a 6% penalty each year that it remains in the IRA.

Bill :

Any earnings on the excess contribution that remain in the account after the tax return due date for the tax year in which the excess was made, will be subject to ordinary income taxes (not capital gains rates) when eventually withdrawn.

Bill :

See pages 48 - 49 - http://www.irs.gov/pub/irs-pdf/p590.pdf

Customer :

So is there any way around this?

Customer :

I'd basically like to contribute 40K this year. I'm not self employed though so I know I probably wouldn't qualify for a SEP IRA I think it's called.

Bill :

There is no way to contribute more than $5,000 to a traditional or Roth IRA without being subject to a penalty. However, you could obtain the same tax-deferred benefit by investing in a nonqualified variable or fixed annuity and there is no limit. In a nonqualified annuity the earnings only become taxable when you eventually withdraw them. However, you would be limited to the investment options within the annuity and could not purchase individual stock and bonds as you could in an IRA.

Customer :

What if I started a Business and then started a SEP IRA. Could I use my own money to invest in the business and then plunk it into an IRA?

Bill :

Yes, if you started a business then you could contribute up to the lessor of 25% of your earnings or $49,000. If the business was not incorporated, then the percentage is actually calculated as 20% of your net self-employment earnings. If you currently do not defer any of your income into a 401(k) or 403(b) through your employer, then you could establish a 401(k) for your new business and possibly defer more than a SEP depending on the amount you earn from the business. For example, if your self-employment earnings are $30,000 then you could only contribute about $6,000 to a SEP but you could contribute $22,500 to a 401(k) ($16,500 + $6,000) assuming you do not currently contribute to a 401(k).

Customer :

One last question then I'm good. Thanks for your help and patience.

Customer :

Can still contribute under 2010 to my IRA I have like 4000K I could still contribute tax free.

Bill :

Yes, you have up until April 18th of this year to contribute for the 2010 year.

Customer :

Nice. That is wonderful. Thank you.

Bill, Financial Advisor
Category: Finance
Satisfied Customers: 3077
Experience: EA, CEBS - 34 years experience providing financial advice
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