Warning About Snowflaking into Roth IRAs

June 6th, 2008  |  Published in Roth IRA  |  2 Comments

Snowflaking, or micropayments, is a clever idea but when it comes to paying off debt but when you are talking about contributing towards retirement, you have to keep several things in mind.

First, the rules of a Roth IRA, which will be easiest to snowflake into, state that you are only permitted to contribute earned income. If you don’t have a full time job and are relying on small irregular income such as filling out surveys or performing odd jobs, you won’t be able to contribute that to a Roth IRA unless you claim it as income. While you should always claim that as income, oftentimes people don’t and so you could find yourself in a quandary if you don’t claim it as income but still contribute into a Roth IRA.

If you have a full time job and the take home pay exceeds the $5,000 limit, you have nothing to worry. If you don’t declare that income, you have enough regular income to contribute so the snowflaking still works. If you don’t have W-2 or other earned income, you could run into problems.

Second, keep track of your contributions. If you are irregularly contributing to your Roth IRA, it may contribute too much in a year. If you do and have to make withdrawals, it can become a pain to roll back the contributions (you have to calculate how much of the annual appreciation is the result of your over-contribution and then pay taxes on it).

If you keep those two concerns in mind, everything should be dandy!

  

Responses

  1. Finance Gets Personal » Carnival of Snowflaking #8: Famous Flakes Edition says:

    June 12th, 2008 at 12:51 am (#)

    […] Given her penchant for spending money, some retirement savings tips might help. Retire Happy has a Warning About Snowflaking into Roth IRAs at My Retirement Blog. This is good advice, but keep in mind that non-working spouses are also […]

  2. Carnival of Snowflaking #8-Flakes Edition « To Be Debt Free says:

    June 12th, 2008 at 2:48 pm (#)

    […] Happy has a Warning About Snowflaking into Roth IRAs at My Retirement Blog. This is good advice, but keep in mind that non-working spouses are also […]