1099-NEC and Roth IRA Question

[greytail]

I'm a little confused and want to double-check that I understand the Roth IRA correctly.

If I have self-employment income, my earned income is the Net Profit on Schedule C line 31 (also the amount on Schedule 1 line 3) minus 1/2 the SE tax (the amount on Schedule 1 line 15) and I don't have to worry about the combined amount on line 10 entered on Form 1040 Line 8 ("Other income from Schedule 1, line 10"), right?

I'm confused since it reads like part of earned income is entered on the 1040, "other income" line. I've never questioned this before since I used CPA to file my taxes until now and this is my first time trying TT. When I go through the process, it keeps entering my 1099-NEC as self-employed/other income and gives me a warning that I exceeded the contribution limit because I have a $0 earned income.

Before I solve the current issue, I'm worried because I only looked at the number on Schedule C line 31 minus 1/2 SE tax until now. I never looked at or questioned Form 1040 line 8 in previous years. Am I okay as long as I had Schedule C with the right amount shown on line 31?

1099-NEC is my only income.

Thanks.

[dmertz · Accepted solution]

Deductible contributions to a self-employed retirement plan also reduce the amount available to support an IRA contribution.  If all of your net earnings go to elective deferrals to a self-employed 401(k), nothing is left to contribute to a Roth IRA.  In other words, the amount available to support a Roth IRA contribution is Schedule 1 line 3 minus Schedule 1 lines 15 and 16.

Excluded foreign-earned income also will not support an IRA contribution, but I suspect that that is not a factor in this case.

[greytail]

Thank you for the response. 

No, I don't have foreign-earned income or 401(k). So I only need to look at Schedule 1 line 3 minus Schedule 1 line 15 and I can ignore line 10 which total appears as "Other income" on Form 1040 line 8, correct?

The reason I ask this is (1) I had a loss on the rental estate (line 5) and the total on line 10 sums up a lot less. (2) I just worry about the wording "other income" on 1040 since I'm stuck on TurboTax which says this is not earned income and my net income is zero.

[dmertz]

I suggest downloading the pfd of your tax return with all worksheets and examining the Earned Income Worksheet to see how TurboTax is determining your earned income.  (You'll need to pay for TurboTax before being able to do the download.)