When setting aside money for their retirement, family child care providers have a variety of Individual Retirement Accounts (IRAs) to choose from.
There is no income eligibility requirement to set up a SIMPLE IRA, unlike the other two.
The other major difference is that you must set up your SIMPLE IRA for 2017 by October 1, 2017. All other IRA plans for 2017 can be set up by April 17, 2018.
You may contribute up to $12,500 of your profit in a SIMPLE IRA. If you are age 50 or older, you can contribute an extra $3,000. You can contribute to your 2017 SIMPLE IRA, up to April 17, 2018, but it must be established by October 1, 2017.
You cannot contribute more to a SIMPLE IRA (or any other IRA) than your profit for the year. Also, you do not have to contribute the maximum amount in any year.
Contributions to a SIMPLE IRA are tax deductible. When you withdraw money after age 59 1/2, you will owe income tax on both your contributions and your earnings on your investment.
There is a penalty for withdrawing money from a SIMPLE IRA after the first two years, or before you reach age 59 1/2.
For more information about a SIMPLE IRA, see my article, “Saving for Your Retirement: The SIMPLE IRA.”
In my opinion, contributing to a Roth IRA should be your number one priority for retirement planning. After contributing the maximum of $5,500 to your Roth IRA, I would recommend establishing and contributing to a SIMPLE IRA. Yes, you can contribute to both a Roth IRA and a SIMPLE IRA in the same year.
The sooner you make an IRA contribution in the year, the better. Use the October 1st deadline as a spur to think seriously about making IRA contributions for 2017.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.flickr.com/photos/76657755@N04/
For more information, see my book Family Child Care Money Management & Retirement Guide.