It's Not Too Late to Contribute to Your IRA for 2013

One of the biggest tax breaks available to family child care providers is the Individual Retirement Account (IRA).

When you put money into an IRA for 2013 it will reduce your 2013 taxable income. You won't have to pay tax on it (along with the interest you earned) until you withdraw it after age 59 1/2.

By not having to pay tax on your contributions and interest for many years your money will accumulate much faster than if you invested outside an IRA.

Note: a ROTH IRA works differently than all other IRAs. You won't get an immediate tax deduction when you make your contributions, but you won't pay any tax on the contributions and the interest earned when you withdraw them.

In general, you will be better off contributing to a Roth IRA than a Traditional IRA.

The deadline for making a contribution to your IRA for 2013 is April 15, 2014. You can both establish and contribute to your 2013 IRA by this date (see exception for a SIMPLE IRA below).

Family child care providers may be eligible to contribute to the following IRAs:

Traditional IRA: If you are single you are eligible to contribute. If you are married and filing jointly and your spouse is not covered by a retirement plan at work, you are eligible to contribute if your family's adjusted gross income (AGI) is less than $188,000 ($191,000 for 2014). If your spouse is covered by a retirement plan at work, you are eligible to contribute if you family's AGI is less than $115,000 ($116,000 for 2014).

Maximum contribution - $5,500 per person (same for 2014); an extra $1,000 if you are age 50 or older. Your contribution cannot exceed your business profit.

Roth IRA: If you are single you are eligible to contribute if your profit is less than $127,000 ($129,000 for 2014). If you are married and filing jointly, you are eligible to contribute if your family's AGI is less than $188,000 ($191,000 for 2014).

Maximum contribution - $5,500 per person (same for 2014); an extra $1,000 if you are age 50 or older. Your contribution cannot exceed your business profit.

SIMPLE IRA: You are eligible to contribute whether you are single or married and regardless of your family's income.

Maximum contribution - $12,00 of your profit; plus an extra $2,500 if you are age 50 or older (same for 2014).

Note: To contribute to a SIMPLE IRA for 2013 you must have established it by October 1, 2013.

SEP IRA: You are eligible to contribute whether you are single or married and regardless of your family's income.

Maximum contribution - 18.59% of your profit (same for 2014).

Additional Rules

You don't have to contribute the maximum contribution to establish an IRA. You can contribute less than the maximum in subsequent years. You don’t have to have tens of thousands of dollars to establish an IRA. T. Rowe Price (www.troweprice.com) allows you to set up an IRS with a minimum contribution of $2,500 (or no minimum with a commitment to contribute at least $100 a month). You can open an IRA with $2,000 at TIAA-CREF (www.tiaa-cref.org) or $2,500 at Fidelity (www.fidelity.com).

Although many child care providers contribute to their IRA after the tax year is over, it's always a better idea to contribute early in the tax year to get the maximum interest over time. So, plan to make your 2014 IRA contributions now!


Join The Child Care Business Partnership!

Minute Menu and Tom Copeland have teamed up to offer you the chance to reduce your taxes, receive direct assistance if you are audited, and personalized business advice so you can be more successful. For $15 a year you can join The Child Care Business Partnership and start receiving direct help from Tom Copeland in using Minute Menu Kids Pro. For more information: http://www.tomcopelandblog.com/2013/07/the-child-care-business-partnership-tom-copeland-minute-menu-and-you.html, or email Tom at tomcopeland@live.com.


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Tom Copeland

I've been the nation's leading trainer, author, and advocate on the business of family child care since 1981. I'm a licensed attorney and have presented hundreds of business workshops for family child care providers across the country. I answer thousands of calls and emails each year to help providers, tax professionals and trainers understand complex business and tax issues. Call me at 651-280-5991. Email me at tomcopeland@live.com. Visit me on Facebook. From 1981 to 2009 I worked at Resources for Child Caring in Minnesota (now called Think Small), where I was director of Redleaf National Institute for 15 years. I've written nine books on the business of family child care published by Redleaf Press, a division of Resources for Child Caring. I was on the board of directors of First Children's Finance, a non-profit organization providing low interest loans and consulting and technical assistance to help family child care providers suceed as a business. They operate in Minnesota, Iowa, Michigan, North and South Dakota, Kansas, Missouri, and Texas. Here are some YouTube videos of me talking about my work with this organization and the business of family child care. I graduated from Macalester College (BA) in 1972 and from William Mitchell College of Law (JD) in 1980. I live in St. Paul, Minnesota with my wife Diane and two cats, Duke and Ella.