Being self employed is a catch 22 in the world of mortgages and Roth IRAs. So many of my self employed mortgage clients have great credit but seem to write down their income to the point to where they sometimes shoot themselves in the foot when it comes to buying a home. In reducing their income with all their write offs (like so many self employed people seem to do) they can reduce their income far enough to prevent them from being able to qualify for the home that they really want and can technically afford.
Now, what I have come across in my mortgage career is that when it comes to IRAs some of my clients who know the Roth IRA basics often don’t think they’ll qualify for a Roth IRA because they make too much money and they overlook the Roth IRA in favor of other traditional plans like the SEP – Simplified Employee Pension.
I’m not going to preach to you about how you should manage your taxes or money, but if you are in the market to buy a home and you are self employed then you need to ensure that you have sufficient income to qualify for the home that you really want and can afford. When it comes to starting a Roth IRA and buying a home, one strategy you may want to employ if you are self employed is to buy your home first by holding your income a little higher. And then when you have your home under your belt, start using your write offs to get your income down to lower your income tax exposure.
When it comes to Roth IRA basics, there are income limits where an individual or married couple are capped in being able to contribute. Here is where the catch 22 comes in, if you are trying to get your income down to the level where you can contribute to a Roth IRA you may find yourself pricing yourself out of the house you want to purchase with showing less income on your tax returns.
My advice, if you are self employed, don’t have a Roth IRA started and thinking about buying a home, talk to a financial planner and tax preparer to cover your options. Most likely there is a path to follow so you can efficiently accomplish everything on your financial goals list – but it is wise to get some professional guidance first.
