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Roth IRA question.

O

Orsorum

Lifer
I am currently a college student - I work as a CA year-round, and I do some research, bout to start some freelance editing/transcription. I don't earn any money from the CA job (I get room and board), but I have earned a little money from research.

Does this make sense? Do I base my IRA contribution on earnings (which would be a flat $590.08 for the year) or on net income (which is ~$570)?
 
Originally posted by: Monel Funkawitz
I've only made $590 for the year
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At this point, I think saving anything is an accomplishment, and I doubt there is any limits. 🙂
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It's really a nitpicky question, as the difference is only ~$20. OTOH, I've already made well over that amt. in interest, and will make at least that much later this year. 😛
 
I believe you are correct. Only earned income can be put in an IRA. If you only earned $500, you can only contribute $500.

Serious suggestion: call the IRS and ask them. Believe it or not, their customer service has been getting better reviews than in the past.
 
Originally posted by: FeathersMcGraw
See this link at the IRS.gov website. Note that it applies to traditional IRAs; the contribution rules for the Roth may differ.
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I believe the contribution rules are the same. But the original question still stands: If my wages before taxes are $600, can I contribute $600 or can I only contribute the after-tax total?
 
You can contribute as much as you want; however, you can contribute tax-deductible up to $3000 / year or 100% of your earned income, whichever is less. Any add'l can be taxed.
 
Originally posted by: amnesiac
You can contribute as much as you want; however, you can contribute tax-deductible up to $3000 / year or 100% of your earned income, whichever is less. Any add'l can be taxed.
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...

For a Roth IRA? Or would earnings on the additional money be taxable?
 
For both Roth and traditional. Roth withdrawals are not taxable.
The tax deduction is in reference to the money as current income. You would not pay current-year income tax on the first $3000 you contribute.
 
Originally posted by: Orsorum
Originally posted by: FeathersMcGraw
See this link at the IRS.gov website. Note that it applies to traditional IRAs; the contribution rules for the Roth may differ.
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I believe the contribution rules are the same. But the original question still stands: If my wages before taxes are $600, can I contribute $600 or can I only contribute the after-tax total?
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Bump.
 
I think I explained this to you earlier.

You can donate 100% of your earned income ($500) OR $3000, whichever is less, AND claim a tax deduction on that amount.

So, you make $500 this year. You can donate UP TO $500 as a tax deductible amount.

If you had $20,000 in savings you can donate every single penny, but you'd pay 6% excise tax on the extra amount.

Now, if you made $10,000 this year, you could contribute up to $3000 with no tax consequences. Any extra, you get taxed ON THAT AMOUNT.
 
Traditional IRA: you can deposit all of it
Roth IRA: you must pay income taxes first and can contribute what's left over
 
Originally posted by: Maetryx
Traditional IRA: you can deposit all of it
Roth IRA: you must pay income taxes first and can contribute what's left over
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Amnesiac - I was just clarifying the distinction between my earnings ($1000) versus after-tax earnings ($~900)

Thank you both very much!
 
wait, let me get this straight. You make less than 600 last year and you're looking to put something in a traditional IRA? Are you crazy?

First off, i don't know how you can have ANY money to put aside with that kind of income, but great job, whatever you're doing.

Second thing, while you're income is low, go with a ROTH IRA. Why get tax breaks on $600 per year when you can get a tax break when you're in your 60s and making $600,000 per year? I think you may be in a higher tax bracket then....😉
 
Originally posted by: DJ Fuji
wait, let me get this straight. You make less than 600 last year and you're looking to put something in a traditional IRA? Are you crazy?
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If his total earned income is less than $600, he's not even going to be paying taxes, so a tax deduction is entirely moot. Roth is clearly the way to go.
 
I'm in college right now. I work as a Community Assistant, which pays for my room, and I have a scholarship which pays for (part) of tuition. I have savings that pay the rest. Any money that I make right now I can save.
 
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