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I used to work for many years and have a pretty
good Roth IRA. Now, I'm self-employed. From what
I understand from Fidelity (where my Roth IRA
is) that I can contribute this year (2001) if I
have either compensation or earned income(for
self-employed). What is earned income? Is it the
profit from my business? What sort of income
in my business (selling specialty merchandise)
would be considered "earned income". I was under
the impression that I could not contribute to
a Roth IRA, but had to open a Keough plan (which
I may do for next year), but am I wrong? Can I
contribute? Thanks.

Howard Dean
Alameda, CA
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"Self-employment income. If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor), reduced by the deduction for contributions made on your behalf to retirement plans and the deduction allowed for one-half of your self-employment taxes. " from http://www.irs.gov/forms_pubs/pubs/p5900102.htm

A Roth IRA is in a group that should be viewed as different from the Keoghs, SEPs, SIMPLEs, 401ks, 403bs, etc.

Here's a link to the IRS Pub on Roth IRAs:
http://www.irs.gov/forms_pubs/pubs/p590ch02.htm

JB
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To answer your other question...

The only restriction on contributing to a Roth IRA is your AGI. Depending on your filing status you may be able to contribute if your modified AGI is up to $150,000. Please see the Fool's IRA pages at:
http://www.fool.com/ira/2001/ira.htm?ref=taxin
or
http://www.fool.com/money/allaboutiras/allaboutiras.htm
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No. of Recommendations: 0
I used to work for many years and have a pretty
good Roth IRA. Now, I'm self-employed. From what
I understand from Fidelity (where my Roth IRA
is) that I can contribute this year (2001) if I
have either compensation or earned income(for
self-employed). What is earned income? Is it the
profit from my business? What sort of income
in my business (selling specialty merchandise)
would be considered "earned income". I was under
the impression that I could not contribute to
a Roth IRA, but had to open a Keough plan (which
I may do for next year), but am I wrong? Can I
contribute? Thanks.


Earned income is probably close to the profit from your business before you pay yourself.

Your earned income is also what you would pay social security (until you reach the limit) and medicare taxes on. Don't forget to pay these taxes each quarter.

Look at schedule C for the 1040 tax return and schedule SE. Read the instructions and this will probably help.

See IRS.GOV for the forms and instructions.

Also look at a SEP to see if that might meet your needs instead of a Keough plan. Depends on how much you will be putting in.
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