topic December earned income paid on January check; which year's Roth contribution for teenager below max contribution? in Retirement tax questions

December earned income paid on January check; which year's Roth contribution for teenager below max contribution?

Billy1707 — Thu, 30 Jan 2025 02:57:23 GMT

My child's paycheck for work hours performed in late December 2024 was issued on January 3, 2025, so this check's amount did NOT appear on her 2024 W2. She contributed the total amount EARNED (vs PAID) in 2024 to her 2024 Roth. Turbo Tax is now insisting that she has overcontributed to her 2024 Roth because her W2 only reflects the amount on the paychecks issued in 2024... but this is NOT her EARNED income for the year! It's a difference of between ~$1,300 & ~$1,500. I know she could probably contribute the ~$200 difference to a 2025 Roth, but she will make over $7,000 this year and I want to get her the max she is entitled to.

How do I reconcile this in Turbo Tax?

Re: December earned income paid on January check; which year's Roth contribution for teenager bel...

MindyB — Thu, 30 Jan 2025 03:05:13 GMT

TurboTax is computing this correctly, because individuals are on the cash method of accounting. The limit, per the IRS, is your taxable compensation for the year. See Retirement topics - IRA contribution limits for more information.

Re: December earned income paid on January check; which year's Roth contribution for teenager bel...

Billy1707 — Thu, 30 Jan 2025 03:22:24 GMT

This makes no sense. Her income EARNED in 2024 is through 12/31 regardless of when it's paid.

Why do the rules say "Earned" income, if it is actually "paid" or "distributed" income? You obviously know better, but makes absolutely no sense. The phrase "earned income" should be banished from all documents and websites if that is not the actual metric!! Total typical confusing bull.

Re: December earned income paid on January check; which year's Roth contribution for teenager bel...

MindyB — Thu, 30 Jan 2025 03:48:47 GMT

Earned income refers to money earned from working rather than unearned income such as interest, dividends, etc. Here's an article with some helpful information: What is earned income?