IRA vs. social security
A client asked, who is self-employed with no employees, if he could opt out of social security
& invest the money in an IRA instead. Can this be done & what are the pro’s
& con’s of this?
Thanks for your opinion!
A client asked, who is self-employed with no employees, if he could opt out of social security
& invest the money in an IRA instead. Can this be done & what are the pro’s
& con’s of this?
Thanks for your opinion!
Permalink Submitted by Meggy Brookson on Fri, 2011-02-04 18:51
I was actually wondering the same thing. Even if this can be done, is this something that I should advise? I don’t know much about the situation so I am not sure what direction to lead the client in. Anything would help. Thanks!
Permalink Submitted by Alan Spross on Fri, 2011-02-04 20:02
You cannot opt out of SS unless you are in the clergy and file a form based on religious objections. However, is you set up a corportation and take a reasonable salary from the corporation your SS contributions may be less than what they would have been as a sole proprietor. I was one projection that if you opted out you would need at least 30,000 in additional retirement savings to offset the potential loss of SS benefits.
IRA contributions are not affected by whether you opted out or not, however the corporate structure might alter your modified AGI in some marginal cases that affect your ability to make a regular Roth IRA contribution or to deduct a TIRA contribution.
Most SE persons supplement SS by establishing a basic IRA or one of the self employed retirement plans such as a solo K plan, SEP, or SIMPLE IRA, etc. that permit larger contributions than basic individual IRA accounts.