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I will probably go see a tax accountant on this subject but maybe someone here can point me to the right type of retirement account, if there is one available.

I own 2 buildings and rent them out to 4 businesses. These buildings are under an S-Corporation (with me as president) and all rent is reported to this corporation. I then draw my living expenses out of this corporation. My only other income is some CD's and stock dividends. I have no other income. So all my income is from rents, interest and dividends---I do not work for anyone else or have another job.

So a traditional or roth ira is not available since I have no "working" income (according to my regular accountant). Is there another type of ira available to someone with no "working" income? I know there are other ira type accounts and I am just starting to investigate ira's but I just thought I would start here and hopefully take a 'shortcut' into the dd. What little I have seen seems to indicate I must be "physically working" in a self-employeed job or for someone else to put money into an ira account.

Thanks
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Your situation sounds fishy to me. How do you pay yourself? I have a C-Corp, not an S-Corp, but I can't just "draw living expenses" out of your corp. I have to pay myself on a W2 basis and pay SS, tax witholding, etc. just like everyone else.

Maybe there's some S Corp tax loophole I'm not familiar with, but I don't think you can earn a living this way w/o earned income.

Nick
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Since you've got an S corp, you've got some flexibility. You've also got some additional issues to consider.

With S corps, the IRS is really looking for you to pay yourself some kind of salary - one reasonable for the work you're doing. Going without a salary at all is a bit risky. That is basically saying that you don't do any work at all for the business. At a bare minimum, you are a director of the corp and need to be paid for that work. You probably are also doing management work - making day-to-day decisions on the properties about rent levels, repairs, maintenance. You might be a bookkeeper, depositing rents and paying bills.

The upshot of all this is that you should be paying yourself something as an employee of the corp. That will be earned income and be the basis for many kinds of retirement plans, from IRA's to 401k plans.

--Peter
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Your situation sounds fishy to me. How do you pay yourself? I have a C-Corp, not an S-Corp, but I can't just "draw living expenses" out of your corp. I have to pay myself on a W2 basis and pay SS, tax witholding, etc. just like everyone else.

Maybe there's some S Corp tax loophole I'm not familiar with, but I don't think you can earn a living this way w/o earned income.


There is nothing fishy about withdrawing capital from an S corp. It is similar to a dividend, except that the withdrawal is not taxable (there are exceptions when the basis in the business is less than the withdrawal).

It *would* be fishy if he said that he treated the living expenses as deductible business expenses.
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The upshot of all this is that you should be paying yourself something as an employee of the corp.

Very true. Here is what the instructions to Form 1120S say:
"If a shareholder or a member of the family of one or more shareholders of the corporation renders services or furnishes capital to the corporation for which reasonable compensation is not paid, the IRS may make adjustments in the items taken into account by such individuals and the value of such services or capital. See section 1366(e)."
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>>There is nothing fishy about withdrawing capital from an S corp

I think you're mistaken. While I can and do pay myself a reasonable dividend from my C Corp, my accountant assures me that the IRS will not allow me to take 100% of my income as dividend, as the poster is trying to do.

While I'd love to do this and avoid payroll taxes, most of my income must come in the form of a salary.

I agree with Peter's post.
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I think you're mistaken. While I can and do pay myself a reasonable dividend from my C Corp, my accountant assures me that the IRS will not allow me to take 100% of my income as dividend, as the poster is trying to do.

I didn't say that you could. Did you see my next post?
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Sorry if I foolishly wrote 'living expenses'. I do draw from the S-Corp. on a monthly basis but more then my living expenses are. If you want to call this a salary that is ok. Some months are more then others depending on what is due that month (real estate taxes, insurance, equipment repair). From my viewpoint it really doesn't matter how much I draw out as my year end taxes are figured from the S-Corp. and the various other interest and dividends I receive.

Perhaps I don't have the smartest accountant in the world as he has not come up with an IRA I can invest in. Of course he has tried to sell me some insurance products that he sells that are tax advantaged but I am not in the market, nor need, large insurance products that I would pay through the nose for.

From some of the other post I am taking that if I 'pay' myself a set 'salary' every month I can set up a certain IRA????
What type of IRA would that be???
Again, my (maybe not so smart) accountant claims I need to have 'working income' before I can put money into my tradional IRA that I have for some years before I quit my 'working' job a couple of years ago and now am in this situation---which I am not complaining about.
Just would like to put some tax deferred money away if it is available. Sorry if I sound naive about IRA's but I guess I am so I ask for your suggestions.
Thanks
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Perhaps I don't have the smartest accountant in the world as he has not come up with an IRA I can invest in. Of course he has tried to sell me some insurance products that he sells ...

Sounds to me like you need to talk to another accountant or two - preferrably ones who don't sell financial products.

A significant part of the work I do is helping clients arrange their affairs so they can take advantage of the tax breaks written into the law. If your accountant isn't able to do that for you, you need a new accountant.

From some of the other post I am taking that if I 'pay' myself a set 'salary' every month I can set up a certain IRA????

You won't "pay" yourself a "salary," you will actually pay yourself some kind of wages in exchange for the actual work you do. For some of my clients, it's a once-a-year paycheck, for others its twice a month. It all depends on what makes sense for you.

What type of IRA would that be???

There are only two kinds of IRA's - traditional and Roth. Some kinds of retirement plans set up by employers can use a traditional IRA as the ultimate place to put the money.

--Peter
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>>If you want to call this a salary that is ok

It's not a question of what you or I would like to call it. Either you're receiving (assuming your accountant is doing the payroll) a paycheck with SS and payroll taxes withheld as well as a form W-2 at end of the year or you aren't.

If you are, you're all set and can contribute to an IRA, 401(k), SEP, or other retirement plan. If you aren't, you're probably breaking the rules and will be in trouble if the IRS finds out.

Nick

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I had an S corp for a number of years and was able to set myself up as an employee of the corporation and had a wage which would qualify you for an IRA or Roth.

I'm curious why no one recommended a SEP-IRA? If this is an S Corp and they become an employee you can reap some pretty decent benefits by adding more to your retirement fund than in a traditional IRA or Roth for that matter. Up to 25% or $40,000 per year depending on income stated on your schedule C no?
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So a traditional or roth ira is not available since I have no "working" income (according to my regular accountant). Is there another type of ira available to someone with no "working" income? I know there are other ira type accounts and I am just starting to investigate ira's but I just thought I would start here and hopefully take a 'shortcut' into the dd. What little I have seen seems to indicate I must be "physically working" in a self-employeed job or for someone else to put money into an ira account.

There are a number of sites that explain the different types of IRAs available to the general public - Bankrate has one:

http://www.bankrate.com/brm/itax/news/20010221a.asp?prodtype=grn

I just wish that the government, in all it's wisdom, would have allowed retirees, or anyone else who has the funds and a mind to save for their future, to take advantage of at least the Roth IRA irregardless of the "color" of their money.

Cheers...

Bill
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There are only two kinds of IRA's - traditional and Roth.

TMF came up with 11 different IRA's:
http://www.fool.com/money/allaboutiras/allaboutiras02.htm
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TMF came up with 11 different IRA's:
http://www.fool.com/money/allaboutiras/allaboutiras02.htm


It's outdated. The Education IRA is now a Coverdell account.

rad
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What are anyone's thoughts on the government's (read: President Bush's) plan to come up with three new savings plans:

1) The Retirement Savings Account (RSA);

2) The Lifetime Savings Account (LSA); and

3) The Employer Retirement Savings Account (ERSA)

These plans are detailed at this site:

http://usgovinfo.about.com/library/weekly/aataxfree.htm

I, for one, like this idea! Has this plan been squashed/shelved/forgotten/etc.? I haven't heard much about it for some time now.

Bill
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TMF came up with 11 different IRA's:
http://www.fool.com/money/allaboutiras/allaboutiras02.htm


With all due respect to David (and probably Roy as well), I'll keep things simpler and stick to my explanation of two kinds of IRA's.

There are multiple ways to get money into an IRA (like a spousal contribution, a SEP contribution, a rollover contribution) but the account and the rules pertaining to it are the same once the money is there.

OK - I'll have to admit that some contributions carry some strings attached, like a SIMPLE contribution. But I'd still suggest that these distinctions are more directly correlated to the contribution rather than to a basic difference in the type of IRA.

--Peter
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I'm not holding my breathe...My understanding is that once these come out there will be similar rollover options as there are today. Yeah they certianly look like great deals. I'm pretty sure it wasn't squashed...just postponed.

The crappy thing is that they will still allow these to be held in the form of an annuity which IMHO should be illegal. Here's the latest I know of...

News Update: LSAs likely to be the centerpiece of Bush's 2004 tax agenda

The 11/5/03 issue of The Wall Street Journal had a front page article by Bob Davis and John D. McKinnon, Two Big Tax-Free Savings Plans to Get New Push by White House. The article noted that the Bush administration was "crafting a sweeping election-year proposal to boost individual savings" that would include lifetime savings accounts and that "the plan stands a decent chance of passage in 2004." In an article in The Christian Science Monitor, Grover Norquist, president of Americans for Tax Reform, suggested that the lifetime savings account (and retirement savings account) will be the Bush tax cut proposal for 2004.

http://www.lifetimesavingsaccount.com/ for more info...
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I just wish that the government, in all it's wisdom, would have allowed retirees, or anyone else who has the funds and a mind to save for their future, to take advantage of at least the Roth IRA irregardless of the "color" of their money.


Amen! Doesn't quite make sense. That's my issue this year. No earned income for 2003 and want to make a contribution, but can't. It does not exactly encourage or empower people to save for retirement.
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I agree, your accountant sounds like an idiot.

You could have KEOGH or a SEP-IRA based on your salary from your corporation. T. Rowe Price will help you set one up yourself -- they certainly helped me.
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