Earned Income for Roth IRA

[IRStress]

• I had a total of 6,000 inW2 Earned Income in 2019.
• I also had a loss of -5,000 in 1099 Income in 2019.
• I contributed 6,000 to my 2019 Roth IRA.

Do I have a 5,000 excess contribution in 2019? 

In other words, is my Earned Income based on just my W2 income or both W2 and 1099 combined Net Income?  

[DaveF1006]

Since your IRA contribution limits is based on your Modified Adjusted Gross Income(MAGI), your contribution limit in 2019 would normally be $1000, which is your AGI and MAGI for the year.

You do have an excess contribution of $5000 in 2019 as your W2 and 1099 capital loss are a combined AGI/MAGI total for the year. 

[dmertz]

The W-2 income is sufficient to support a $6,000 IRA contribution.  The fact that you have an AGI of less than $6,000 is irrelevant.  Self-employment business loss (or any other kind of loss) does not get combined with the W-2 income to determine compensation that supports the IRA contribution.  You do not have an excess contribution.  Once everything is entered into TurboTax you will see that TurboTax does not flag an excess contribution.

[IRStress]

@DaveF1006 Thank you. But now I have 2 opposing answers to the same question here. This is exactly what brought me to ask this question in the first place. There is no clear answer I can find anywhere. Not sure what to do. :(

[VolvoGirl · Accepted solution]

See IRS pub 590A Contributions page 6

https://www.irs.gov/pub/irs-pdf/p590a.pdf 

Self-employment loss. If you have a net loss from self-employment, don’t subtract the loss from your salar- ies or wages when figuring your total compensation.

[IRStress]

@VolvoGirl Thank you very much for providing the IRS document and pointing out the little sentence that answer this question. 

@dmertz Thank you as well for letting me know the correct response and pointing out a way to corroborate as TurboTax won't make an excess once all information is entered.

@DaveF1006 Thanks for your response but it seems incorrect according to the IRS document shared in this thread. I guess this is an opportunity for both of us to learn something new 🙂