There are a lot of benefits to becoming an owner-operator. You have the freedom to be your own boss, you can spend time at home on your own terms, and you are the benefactor of profitability. Unfortunately, one thing that you don’t have, is an employer sponsored retirement plan. That means you need to be proactive in making sure your retirement needs are met on your own.

As a small business owner, you have several different options when saving for retirement. Two of the most popular are to use either a traditional IRA or a Roth IRA. Before talking about the different contribution limits that you have, let’s explain how these two options differ from one another.

RothIRA-(2).jpg

Traditional IRA

A traditional IRA is very similar to a 401k because you will be able to deduct contributions on your income tax return. All gains will continue to grow tax-free within the account. When you begin taking distributions, you will pay income taxes on all capital gains. In addition, you will only be able to contribute to a traditional IRA until you reach the age of 70 ½.

Roth IRA

A Roth IRA is nearly the exact opposite of a traditional IRA. All contributions that you make are after tax, which means they are not deductible on your income taxes, however you will not owe any tax when you start taking distributions. A Roth IRA tends to be the more attractive choice for anyone earlier in their career that plans on being in a higher tax bracket once they get closer to retirement.

2017 IRA contribution limits

The same contribution limits are in place for traditional IRA’s and Roth IRA’s. Because we have been in a period of relatively low inflation, there has not been an increase in the limit since 2013. The 2017 IRA contribution limit is $5,500 for anyone up to 49 years of age. If you are 50 or older then you will be able to contribute an additional $1,000. This is known as a “catch-up contribution”.

Income limitations for a Roth IRA

The biggest difference between the two types of IRA’s is that a Roth IRA comes with income limitations. That means you will be unable to invest in a Roth IRA if you reach a certain income level. Below you will find the limits, broken down by your filing status:
 

Tax Filing Status Adjusted Gross Income for Full Contribution

Adjusted Gross Income for Partial Contribution

No Contribution
Single $118,000 $118,000 - $132,999 $133,000 or more
Married filing jointly $186,000 $186,000 - $195,999 $196,000 or more
Married filing separately $0 $0 - $9,999 $10,000 or more

Traditional IRA deductions limited

When you invest in a traditional IRA there are no income limitations to worry about, but there are restrictions on deducting your contributions on your federal income taxes. If you are not married, or your spouse does not have access to a work sponsored retirement plan then the deduction limits are minimal. The table below highlights when deductions start to phase themselves out.

table2-(2).png

If you have dreams of someday enjoying a comfortable retirement, it’s time for you to start investing. If you’re still not sure where to put your money, we recommend speaking with an investment advisor as soon as you can.

SHARE THIS:

Sean Bryant, Digital Marketing Manager

Sean is a graduate of the University of Iowa where he received a Bachelor's of Arts degree in economics. After beginning his career in banking, he found his love for marketing.  Before arriving at ATBS in 2014 he spent time working for two different technology startups as well as his own freelance marketing company.

Outside of work Sean enjoys spending time with his wife, daughter and dog. When he's not traveling you can frequently find him on his bike or snowboard.

Related information

Everything You Need to Know About Chain Laws

October 2016. The weather is beginning to get a little cooler across the United States and some of the higher elevations are beginning to see snow. That means it’s time to freshen up on the chain laws in the states that you regularly run.

Read full story

Everything You Need to Know About Self-Employment Tax

When you're a company driver your employer handles your payroll taxes. However, we you become an owner-operator, you're responsible. Find out what makes up your self-employment taxes.

Read full story

Tips for Filing an Amended Tax Return

Your taxes have been filed and you might even have a return on its way. That is when you realize that you made a mistake. If this sounds like you then don’t worry. All you need to do is follow these tips on how to file an amended tax return.

Read full story

KEEP YOUR BUSINESS BETWEEN THE LINES WITH USEFUL INFORMATION SENT RIGHT TO YOUR INBOX.

Sign Me Up