No. of Recommendations: 0

<<My employer offers a SIMPLE Plan - basically a 401k plan for small businesses. Someone at Charles Schwab told me that it is actually an IRA and, therfore, I could not purchase a Roth as well. Is this true?

Also, my wife just quit work to stay home with our daughter. She's been investing in her company's 401k so far this year. Is she also ineligible for a Roth this year?>>

The agent from Charles Schwab is totally incorrect. The SIMPLE (be it an IRA or a 401k) is a salary reduction plan for the purposes of determining whether an IRA contribution is deductible or nondeductible. You may still participate in a contributory IRA, but you may not be able to deduct it. That doesn't matter with a Roth because that's a nondeductible IRA anyway. Accordingly, you are free to contribute up to $2K per year to a Roth if you want to do so.

And, as long as you earn at least $4K in income this year, your spouse may contribute $2K to a Roth as well. Again, her participation in the 401k this year only affects her ability to deduct a contribution ro a traditional IRA, it does NOT affect her Roth eligibility. In fact, if she is still not employed next year, then she may contribute $2K to a fully deductible traditional IRA in 1999 even if you are covered by the SIMPLE or anything else by an employer.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.