Can I max out my Roth IRA for 2018?

[american887]

I am below 59. I earned $4200 on box 1 of my W2, although it says $4350 on box 3 and 5 because it includes $150 into a 401k. I also had $1750 on Box 7 of my 1099 for my side job. I may deduct about $100 of business expenses. Can I contribute the $5500 max for 2018? Do I have to be careful about deducting anything else if I contribute $5500?

[Hal_Al · Accepted solution]

Bottom line: you may make a full $5500 contribution to your ROTH IRA.

Roth IRA Modified Adjusted Gross Income (MAGI)

When the IRS speaks of various income levels it is referring to modified adjusted gross income. To figure your modified adjusted gross income, you will need your adjusted gross income (AGI) from your tax return. You then add back several adjustments, including the deduction for half your self employment tax.

For more on ROTH MAGI, see:

https://www.irs.com/articles/what-modified-adjusted-gross-income

Dependents are allowed  to make a ROTH IRA contribution.

[american887]

Thank you. I have not filed yet, and I’m not sure how my parents accountant will do it. Is there any scenario with deductions or taxes where I could not contribute $5500, or am I fine either way?

[Hal_Al]

There is no  scenario where you could not contribute $5500. You are fine either way.

[Coleen3]

 The contribution is limited by income.

What Is Compensation?

Generally, compensation is what you earn from working. For a summary of what compensation does and does not include, see Table 1-1. Compensation includes all of the items discussed next (even if you have more than one type).

Wages, salaries, etc.   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.

Commissions.   An amount you receive that is a percentage of profits or sales price is compensation.

Self-employment income.   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:

• The deduction for contributions made on your behalf to retirement plans, and
• The deduction allowed for the deductible part of your self-employment taxes.

[american887]

Wouldn’t I still reach the $5500 threshold though?

[Coleen3]

Yes. $4200 plus 1600 minus roughly $80 for half of SE taxes.

[american887]

So I CAN contribute $5500? Is there anything else I have to be careful of regarding taxes if I do?

[Coleen3]

Yes. Your income is low enough that you won't be affected by high income limits due to having a plan at work.

[american887]

Thanks for your help as I’m new to all this. What does the plan at work have to do with it?

[Coleen3]

I'm glad all this is helpful. If you have a plan at work and your income is too high, you can't deduct your contribution.

[american887]

But wait, I'm talking about a Roth, what do you mean about deducting contributions?

[Coleen3]

Same thing, just not deductible. Same rules apply otherwise.

[american887]

Does it matter if I'm being claimed as a dependent?