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Company can contribute to your Roth IRA

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in Small Business Tax,Small Business Tax Deduction Strategies

Q: Our small company does not have a retirement plan. Can the company contribute to a Roth IRA on my behalf if I'm one of the company principals? P.H., Columbia, Md.

A: Yes. A company may contribute to a Roth IRA or traditional IRA (or combination of both) for an eligible employee up to the annual limits for such IRAs. The current limit is $3,000 per year. But any employer-paid contribution must be treated as compensation for tax purposes. The contribution is also subject to payroll taxes. In effect, it's as if you were paid extra compensation and made the contribution yourself. Depending on your income, you may be able to deduct all or part of a company contribution to a traditional IRA. All things considered, however, it's a whole lot easier to simply make IRA contributions on your own, rather than through a company plan.

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