topic Roth IRA contribution limit in Retirement tax questions

Roth IRA contribution limit

Lynn234 — Sun, 17 Oct 2021 22:49:19 GMT

Does a taxable lawsuit settlement count as earned income for the purposes of the Roth IRA contribution limits? Say a taxable lawsuit settlement put you over the income limit - can you still contribute to a Roth IRA since Medicare and social security were not withdrawn? Similarly, does it count toward self employment income for the contribution limits of a SEP IRA? Thanks

Re: Roth IRA contribution limit

GeorgeDenseff — Mon, 18 Oct 2021 00:43:34 GMT

No, it is not earned income. It would be taxable unearned income.

Re: Roth IRA contribution limit

macuser_22 — Mon, 18 Oct 2021 01:15:21 GMT

The IRS defines it a "Taxable Compensation" not earned income which are different.

(And the first answer is correct. Lawsuit settlements are not taxable compensation for IRA's)

See IRS Pub 590A "What is compensation" for what is allowed and disallowed.

https://www.irs.gov/publications/p590a