Question for the Money Doctors
Question submitted on Aug 14, 2013.
QuestionMy wife and I have lived in our current home for 5 years now. We moved from out of state. She is just now starting to make some money in her job. She is a real estate agent. All the money she is making is not being taxed and she is making enough money so that we are socking it away in savings. I am afraid of how much we will owe in taxes at the end of the year. What should we invest in (roth, 401k, etc.)?
Congratulations on achieving success in business! It is first important to determine how much you will owe in taxes and what tax bracket you are in. Depending on the state you live, you will also want to consider the impact of state taxation. Most states have fairly low thresholds for taxation. Some are income tax free. If you are in a low tax bracket, you may not have much of a tax benefit by contributing or having a salary deferral to an IRA or traditional 401k. You may want to consider contributing to a traditional IRA or deferring salary to a 401k plan. If your spouse is an independent contractor and considered to run her own real estate practice, you will also need to. If she is an independent contractor, and has no employees, you should consider a solo 401k. This opportunity can give her the ability to contribute beyond traditional IRA and salary deferral limitations. Your ultimate decision will be based on your long term goals and what you believe is in your best interest to achieve those goals.
The first step is to determine your tax picture before the end of the year and develop a solution from there.
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