Does the "No tax on tips" affect a Roth IRA Contribution?

[jimshane]

I made a deal with my kids that I would match their earned income (up to the maximum) until they reach age 21 to put into a Roth IRA.   

I figured it would give them a good start when they get out of college.   One of my kids just finished his Freshman year of college, and his earnings are mostly tips working as a waiter in a restaurant.

Since those tips won't be taxed as income, will they be eligible to put into a Roth?

Thank you

[NCperson · Accepted solution]

@jimshane yes, they will be....none of the tax law changes will impact the first 11 lines of form 1040.  So AGI will look the same, whether there is tip income or not. The tip income will be reported just as it was in 2024. 

The method of determing the max Roth contribution does not change as it is based on the earned income reported on Lines 1 -11. 

What changes is the deductions that are reported between Lines 11 and Lines 14.  The eligible tip income will be subtracted from Line 11,which would reduce the tax due.