topic Net loss this year. in Retirement tax questions

Remove ROTH IRA penalty

ernie1 — Sat, 01 Jun 2019 18:20:32 GMT

I entered my personal information - including contributions to my ROTH IRA - and got hit with a penalty because I didn't have any "earned income".

I then entered my business income (my only income) on the business tab, but the penalty will not go away. Is business income not allowed for ROTH IRA contributions?

Do you have a profit on the business?

MichaelL1 — Sat, 01 Jun 2019 18:20:33 GMT

Do you have a profit on the business?

Net loss this year.

ernie1 — Sat, 01 Jun 2019 18:20:36 GMT

Net loss this year.

Schedule C business

ernie1 — Sat, 01 Jun 2019 18:20:37 GMT

Schedule C business

The Sch C is earned income on the net profit. A loss will...

MichaelL1 — Sat, 01 Jun 2019 18:20:38 GMT

The Sch C is earned income on the net profit.

A loss will not work for doing an IRA if that is only earned income.

That doesn't seem right - I only have business income. It...

ernie1 — Sat, 01 Jun 2019 18:20:41 GMT

That doesn't seem right - I only have business income. It exceeds what I contributed to my Roth IRA. After entering business expenses this year, I have a net loss. So the IRS makes it worse by adding a penalty for contributing to my Roth IRA? Am I supposed to know before I make my monthly contributions to my ROTH that at the end of that year I'm going to end up with a net loss?

You actually can make IRA contributions for 2018 tax year...

MichaelL1 — Sat, 01 Jun 2019 18:20:42 GMT

You actually can make IRA contributions for 2018 tax year up to due date of 4-15-2019.

Here's the COMPLETE answer: To avoid the 6% penalty on th...

ernie1 — Sat, 01 Jun 2019 18:20:44 GMT

Here's the COMPLETE answer: To avoid the 6% penalty on the amount contributed (any amount contributed is considered "excess" if you didn't have any net income) take a distribution of the full amount for that year + gains (interest, dividends, appreciation, etc.) if any. The gains will then be subject to the 10% penalty if you're under 59-1/2 (or whatever other exception may apply in your case. None apply in my case, and I did not invest any of my 2018 contributions because they were too small - I just earned simple interest.

So I called my brokerage and completed a form to transfer the 2018 cash contributions + the interest to my primary brokerage account.

It may be possible to recharacterize all the 2018 contributions as 2019 contributions, but I'm not so sure that would work - if you had a lot of capital gains or dividends, then that might be something you'd want to try.

In TurboTax, I indicated that I took the distribution so that TurboTax can properly attach a statement explaining the reason for the early distribution (at least I HOPE that's what TurboTax will do).

90 minutes on hold and transferred around with the IRS and 45 minutes making sure I completed the right form with my brokerage got me to the above answer, and the penalty is now removed from my TurboTax return.

I hope this helps other people 🙂