Roth IRA

Forum|Forum|6 years ago
January 27, 2020
1 reply
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Are capital gains part of earned income in order to contribute the full $6000 to my Roth? It says penalty because at my job I only made 4500 but made 1600 in capital gains that I thought would count towards the full contribution. I already contributed and it’s saying I must remove that money. Thanks for the help

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Best answer by macuser_22

No. Only money that you worked for. If you only earned $4,500 then that the all that you can contribute. You must remove the excess as a "return of contribution" and the financial must also remove any earnings attributed to the excess.

The most you can contribute to all of your traditional and Roth IRAs is the smaller of:

For 2018, $5,500, or $6,500 if you’re age 50 or older by the end of the year; or
your taxable compensation for the year.
For 2019, $6,000, or $7,000 if you’re age 50 or older by the end of the year; or
your taxable compensation for the year.

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deducible part of the SE tax, but can include commissions, alimony and separate maintenance, and nontaxable combat pay ).

See IRS Pub 590A "What is compensation" for details:
https://www.irs.gov/publications/p590a#en_US_2018_publink1000230355

See this IRS article for Roth contribution limits:

https://www.irs.gov/retirement-plans/roth-iras

macuser_22

Answer

Alumni - Champ

No. Only money that you worked for. If you only earned $4,500 then that the all that you can contribute. You must remove the excess as a "return of contribution" and the financial must also remove any earnings attributed to the excess.

The most you can contribute to all of your traditional and Roth IRAs is the smaller of:

For 2018, $5,500, or $6,500 if you’re age 50 or older by the end of the year; or
your taxable compensation for the year.
For 2019, $6,000, or $7,000 if you’re age 50 or older by the end of the year; or
your taxable compensation for the year.

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deducible part of the SE tax, but can include commissions, alimony and separate maintenance, and nontaxable combat pay ).

See IRS Pub 590A "What is compensation" for details:
https://www.irs.gov/publications/p590a#en_US_2018_publink1000230355

See this IRS article for Roth contribution limits:

https://www.irs.gov/retirement-plans/roth-iras

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**