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.
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.

Filing Status Your Adjustable Gross Income Is... You Can Take...
Single Any amount A full deduction
Married filing jointly or separately when spouse is not covered by plan at work Any amount A full deduction
Married filing jointly and spouse is covered by a plan at work $184,000 or less A full deduction
$184,000-$194,000 A partial deduction
$194,000 or more No deduction
Married filing separately with spouse who is covered by a plan at work Less than $10,000 A partial deduction
$10,000 or more No deduction

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.

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Comments (2)

Sean Bryant

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.

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If you are over the cap, you can do a back door Roth, since Roth grows tax-free, it is alost always the best IRS. You invest into a Traditional IRA, then roll it to a ROTH.

February 19, 2017 17:11:44 PM

Very nicely done Sean! Only thing I would add is that you have until April 15 (or tax day) to make your contribution for last year. Thanks again for putting this together!

January 27, 2017 9:14:12 AM