DON'T HAVE YOUR ROTH IRA OWN S CORPORATION STOCK

The Appeals Court has ruled that a taxpayer that put his S corporation stock in a Roth IRA tainted the S election so therefore the corporation was a C corporation. Because a Roth IRA is an ineligible S shareholder, the company is taxed as a regular corporation (Taproot Admin. Services, 9th Cir.).

The rational is that the Roth doesn’t owe tax on its share of the firm’s earnings and the Roth owner wouldn’t be taxed on payouts from the account once it had been in existence for five years and the owner was 59½.