Can an LLC Contribute to a Roth IRA for the Owners?

A Roth individual retirement account accepts after-tax contributions that are subject to certain limits. For example, you can’t contribute more than your gross income. Roth IRAs are not set up for employer contributions, but Roth versions of qualified employer plans, such as Roth 401(k)s, allow these. A limited liability corporation or LLC might be able to make pretax contributions on your behalf to its employer plan, even if it has Roth feature.

Roth Contributions

Only the owner or owner’s spouse can contribute to an IRA. An LLC or any other entity can give you money for your Roth IRA, but you must observe the contribution rules. As of 2013, you can contribute your entire income or $5,500, whichever is less. If you’re age 50 or older, the limit is $6,500. Roth IRAs also have income caps that reduce or prohibit contributions. These limits can change each year. If you receive a gift from an LLC that is not compensation, you will owe gift tax on the amount greater than $14,000, as of 2013.

Designated Roth IRA

A designated Roth IRA is the portion of a 401(k) or other qualified employer plan that accepts voluntary after-tax contributions from employees. Employees can contribute any portion of their gross income to a designated Roth IRA, up to $17,500 as of 2013. If you’re age 50 or older, the limit is $23,000. Designated Roth IRAs don’t have income caps. Your qualified plan at work might allow your employer to contribute to your account. However, these contributions are pretax and go into an account separate from the designated Roth IRA.

Rollovers

You can transfer your qualified employer plan to a Roth IRA when you leave your job or retire. You don’t owe taxes on the designated Roth part, but you must include the pretax portion in your taxable income. This includes your deferred salary contributions, employer contributions and the earnings on both. If you want to roll over your employer plan by first withdrawing the money, you must contribute it within 60 days to your IRA, and your employer must withhold 20 percent of the taxable portion. You can instead arrange a trustee-to-trustee transfer that has no deadlines or withholding requirements.

Considerations

A self-employed person can run a business through a single-member LLC. This gives the person the liability protection of corporations but provides for personal taxation. The LLC doesn't pay income tax but instead distributes its profit to the owner, who treats it as ordinary income. You can have your LLC contribute to your Roth IRA, but the IRS treats it as your personal contribution and disregards the LLC. You can’t roll over a Roth IRA to an employer’s designated Roth IRA or anywhere else other than another Roth IRA.

About the Author

Based in Chicago, Eric Bank has been writing business-related articles since 1985, and science articles since 2010. His articles have appeared in "PC Magazine" and on numerous websites. He holds a B.S. in biology and an M.B.A. from New York University. He also holds an M.S. in finance from DePaul University.

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