fbpx

Roths And S Corps Do Not Play Well Together

“I usually root for the taxpayer, but this case was an exception. When I think it borders on the self-evident that a favorable tax plan does not work and it turns out that it does, I am very embarrassed. As it turns out the Tax Court and now the Ninth Circuit agreed with me.”

Mayan calendar issues aside, this year means one more year for you to harness the power of the Roth IRA as a tax savvy means to create and eventually transfer wealth. Nevertheless, Roths are not the silver tax bullet in all cases, as Peter Rielly of Forbes recently pointed out in an article titled Hog Gets Slaughtered – Roth IRA Not Qualified To Hold S Stock.

Rielly writes about how Roths and S Corps really don’t mix well. In many ways it’s unfortunate, but probably also obvious, the powers of an S Corp can’t be combined with the powers of a Roth IRA.

As many small business owners already know, S Corporations can be supremely advantageous, if you’re in the position to use one, because they can avoid corporate income tax.

The Roth, meanwhile, avoids tax on future earnings by paying taxes on contributions upfront, rather than upon eventual distributions. Together that would have made for some serious savings for small business owners who also are thinking ahead and planning for their eventual estate transfers.

So, as already foreshadowed above, when it comes to combining Roths and S Corps you really cannot have your cake and eat it too. Case law is against you. After all, the S Corp election is only valid if all shareholders of the S Corp are valid, and a Roth IRA is apparently invalid.

The case is Taproot Administrative Services, Inc., Petitioner-Appellant, v. Commissioner of Internal Revenue, Respondent-Appellee. I recommend reading the full article, as there are more moving parts and other alternatives to consider. 

You can learn more about estate planning and elder law issues on our website. Be sure to sign up for our free e-newsletter to stay abreast of issues like these that could affect you, your loved ones and your estate planning.

Reference: Forbes (March  28, 2012) “Hog Gets Slaughtered – Roth IRA Not Qualified To Hold S Stock

 

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment

LIKE THIS POST?

We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Coronavirus/Covid-19
Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.