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Author: susan400 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121146  
Subject: royalty to earned income Date: 3/16/2011 12:38 PM
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a family in SW PA is about to see huge royalty fow form natural gas.

they have little retirement.

can anyone think of a way to convert some royalty income to earned so it can be placed in ROTH 403s or similar.
??

TIA
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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112755 of 121146
Subject: Re: royalty to earned income Date: 3/16/2011 1:46 PM
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can anyone think of a way to convert some royalty income to earned so it can be placed in ROTH 403s or similar.

Royalty income is not earned income, and cannot be 'converted' to earned income. However, if the couple is employed and eligible for retirement plans through their employment, they can use royalty income for living expenses and contribute employment income to the retirement plans. Additionally, if there is earned income from employment, they can contribute to IRAs for each of them. The type of IRA (deductible, Roth, non-deductible) that they would be eligible to contribute to can be determined based on IRS Pub 590.

If there is no earned income, then the royalty income can always be invested in taxable accounts. Just because it doesn't say "IRA", "401(k)", "403(b)" or some other "retirement" designation doesn't mean that it can't be money for retirement. In fact, for many people, it's a good strategy to have at least some of their retirement money in taxable accounts, so that they can structure their retirement income to pay the least amount of tax possible.

AJ

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112756 of 121146
Subject: Re: royalty to earned income Date: 3/16/2011 1:48 PM
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Retirement savings does not have to be kept in an IRA, 401k, or other similar plans. You CAN save for retirement in an ordinary account as well.

--Peter

PS - No, you don't want to try to convert that to earned income. Earned income carries with it Social Security taxes at roughly 15%. So do you (OK, they) want to pay an extra 15% in tax just to put some money into an IRA? I didn't think so.

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Author: susan400 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112810 of 121146
Subject: Re: royalty to earned income Date: 3/24/2011 11:14 AM
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re royalty income - AJ Thanks for your response and the 2nd reply as well, re employment taxes. I guess there is something aout ROTH IRAs, 403Bs, beeing untaxed
that makes me look for ways to get $$$ into them.

I fear higher Cap gains and taxes in general in the decade or 2 ahead.
Would like to have the stk portfolio in IT vs just outright ownership.
I assuume ROTH's protections will be preserved.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112813 of 121146
Subject: Re: royalty to earned income Date: 3/24/2011 12:04 PM
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I assuume ROTH's protections will be preserved.

That is a large assumption. As the assets in ROTHs increase, congress will find a way to mess with it.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112872 of 121146
Subject: Re: royalty to earned income Date: 3/29/2011 3:04 PM
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I guess there is something aout ROTH IRAs, 403Bs, beeing untaxed that makes me look for ways to get $$$ into them.

While withdrawals from Roth IRAs are untaxed (at least for now), traditional 403(b) accounts are tax deferred, not 'untaxed'. You save money on the taxes now, but you pay ordinary income tax when you take withdrawals.

I fear higher Cap gains and taxes in general in the decade or 2 ahead.

Fearing significantly higher tax rates in the future would be an argument for paying taxes now, rather than deferring them, since you can pay at the current rates, which you believe are lower than future rates will be.

I assuume ROTH's protections will be preserved.

Just like SS was never supposed to be taxed? It's Congress that makes the rules. Now, tell me again what your assumption is?

AJ

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