Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
mayacoppa
New Member

I receive a industrial disability pension, is my non-taxable retirement considered "earned income"? I got an excess contribution penalty for my Roth IRA contribution.

My pension gross is over $60,000 but not taxable because it is a disability retirement.  I made the maximum allowable $5,500 dollar contribution to my Roth IRA but when I entered the information into Turbo Tax I received an alert that I owed a 6% penalty for an excess contribution because my earned income is zero.  How is that possible?

2 Replies
Vanessa
Level 3

I receive a industrial disability pension, is my non-taxable retirement considered "earned income"? I got an excess contribution penalty for my Roth IRA contribution.

No, nontaxable retirement income is not considered earned income.  If this was long-term disability benefits received prior to minimum retirement age, then it would be.  But, retirement income is specifically listed as NOT earned income.

This would be the reason you are getting the alert that you overcontributed.  You have to have earned income in order to contribute.

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Vanessa
Level 3

I receive a industrial disability pension, is my non-taxable retirement considered "earned income"? I got an excess contribution penalty for my Roth IRA contribution.

No, nontaxable retirement income is not considered earned income.  If this was long-term disability benefits received prior to minimum retirement age, then it would be.  But, retirement income is specifically listed as NOT earned income.

This would be the reason you are getting the alert that you overcontributed.  You have to have earned income in order to contribute.

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income

You may want to talk to your financial advisor about removing this contribution. 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Dynamic AdsDynamic Ads
Privacy Settings
v