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Can I contribute to my Roth IRA under these circumstances

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sbutk7
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Can I contribute to my Roth IRA under these circumstances  Reply with quote  

I'm currently unemployed.

My neighbor just took a 3 week vacation, and while he was away I had agreed to look after his house, his cats, and his plants. For my troubles, he had promised to pay me with a $500 check, which he did indeed make good on when he returned.

My question is, am I allowed to deposit that check in my Roth IRA account, adding to my savings for my far-off retirement? I realize I hold no steady job ...but the check did represent "earnings".

Thanks.
Post Tue Apr 30, 2013 1:24 am
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oldguy
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Probably not - you have to have 'W2 earnings' (or 1099) that is equal to or exceeds your Roth contribution.
Or, if you are married, your spouse's earnings counts for you.
Post Tue Apr 30, 2013 2:54 pm
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littleroc02us
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I guess if I didn't have a job I would be in survival mode and investing would be the last thing I would do.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Apr 30, 2013 3:15 pm
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coaster
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To expand on oldguy's point above, your $500 is not reported to the IRS; therefore it's not W-2 earnings income. To add a slight qualification to oldguy's comment, it is taxable compensation, as compensation is defined by the IRS. If you have enough other compensation such that you're required to file an income tax return, then this $500 can be reported on your tax return as taxable compensation and it can be contributed to a Roth IRA. However, if you do not have enough other income to file an income tax return, then since it never gets reported as taxable compensation, it cannot be contributed to your Roth.

All the above is my own interpretation of the IRS publication on the topic, located here:

http://www.irs.gov/publications/p590/ch02.html

...and I may be wrong (I'm, no tax lawyer), so you take your own risk to base your tax decisions solely on it. You have until the end of the year to know whether you'll need to file or not, anyway, and until next April to make your contribution.

~Tim~
Post Tue Apr 30, 2013 3:26 pm
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clydewolf
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Re: Can I contribute to my Roth IRA under these circumstance  Reply with quote  

quote:
Originally posted by sbutk7
I'm currently unemployed.

My neighbor just took a 3 week vacation, and while he was away I had agreed to look after his house, his cats, and his plants. For my troubles, he had promised to pay me with a $500 check, which he did indeed make good on when he returned.

My question is, am I allowed to deposit that check in my Roth IRA account, adding to my savings for my far-off retirement? I realize I hold no steady job ...but the check did represent "earnings".

Thanks.

If you are drawing unemployment compensation you will file a tax return.
Does your unemployment office know of the $500?

You can file a tax return with just a Schedule C-EZ with no expenses and the $500 income.
You may have to pay employment tax (SS and Medicare) on that $500.
Also the $500 would be added to your other taxable income.

Filing the Schedule C-EZ would qualify that $500 for your IRA.
As other posters indicated, income that qualifies for IRA contributions is: W-2, 1099,
Self Employment (schedule C or CEZ) and Alimony.

When you contribute that $500 to your IRA, and if you were to owe any income tax, You may also qualify for the Saver's Tax Credit. However the Saver's Tax Credit is only good for reducing or eliminating income tax, you would still owe the employment tax.
Post Tue Apr 30, 2013 7:44 pm
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coaster
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Re: Can I contribute to my Roth IRA under these circumstance  Reply with quote  

quote:
Originally posted by clydewolf
If you are drawing unemployment compensation you will file a tax return.

Nice catch. Wink

~Tim~
Post Wed May 01, 2013 3:58 am
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sbutk7
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quote:
Originally posted by coaster
To expand on oldguy's point above, your $500 is not reported to the IRS; therefore it's not W-2 earnings income. To add a slight qualification to oldguy's comment, it is taxable compensation, as compensation is defined by the IRS. If you have enough other compensation such that you're required to file an income tax return, then this $500 can be reported on your tax return as taxable compensation and it can be contributed to a Roth IRA. However, if you do not have enough other income to file an income tax return, then since it never gets reported as taxable compensation, it cannot be contributed to your Roth.

All the above is my own interpretation of the IRS publication on the topic, located here:

http://www.irs.gov/publications/p590/ch02.html

...and I may be wrong (I'm, no tax lawyer), so you take your own risk to base your tax decisions solely on it. You have until the end of the year to know whether you'll need to file or not, anyway, and until next April to make your contribution.



I apologize for taking so long in getting back to this thread, but one thing after another just kept coming up.

Thank you to everyone for your answers - even the snide ones. Fear not, I still live with my parents (I did give one clue, in that my retirement was "far off") ...so I don't think "survival mode" is in order just yet.

coaster, your reply was one of the most helpful, and it does seem to offer me some hope. In addition to my [Roth] IRA, I do hold a brokerage account with Schwab, as well as a few CDs and other accounts. Thus I do file a yearly tax return. As such, if I'm interpreting you correctly, it does sound like there will be an opportunity during my return to report my $500 "earnings" - and thus enable me to make a matching contribution to my Roth account.

Any further comments, advice, or recommendations? Thanks!
Post Wed May 15, 2013 2:25 am
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coaster
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Well, the tax code being what it is, subject to interpretation, it's always the IRS's interpretation that counts in the end, so you're wise if you take any "advice" you come across in online forums with a healthy bit of skepticism, and that includes ours.

I find TurboTax to be very helpful in what-iffing unknown scenarios. It takes some time, but you get definitive and quantified answers. The only caveat is that it's last year's tax code.

~Tim~
Post Wed May 15, 2013 5:01 am
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littleroc02us
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quote:
Fear not, I still live with my parents (I did give one clue, in that my retirement was "far off") ...so I don't think "survival mode" is in order just yet.




What I meant by survival mode is that when your basically unemployed the focus is on maintaining a sort of buffer zone so that if Murphy's law does happen you have cash resources on hand. When your income becomes steady then I'd go back to an investment strategy.

Hope that helps.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed May 15, 2013 8:29 pm
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sbutk7
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quote:
Originally posted by littleroc02us
quote:
Fear not, I still live with my parents (I did give one clue, in that my retirement was "far off") ...so I don't think "survival mode" is in order just yet.




What I meant by survival mode is that when your basically unemployed the focus is on maintaining a sort of buffer zone so that if Murphy's law does happen you have cash resources on hand. When your income becomes steady then I'd go back to an investment strategy.

Hope that helps.



It's all good. I can see definite validity in what you're saying. ...My personal situation is a little different, though. Living at home, I have only those bank accounts I spoke of as limited sources of income; but also expenses that are either minimal or nonexistent.
Post Sat May 18, 2013 5:33 pm
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Anton Martin
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Re: Can I contribute to my Roth IRA under these circumstance  Reply with quote  

quote:
Originally posted by sbutk7
I'm currently unemployed.

My neighbor just took a 3 week vacation, and while he was away I had agreed to look after his house, his cats, and his plants. For my troubles, he had promised to pay me with a $500 check, which he did indeed make good on when he returned.

My question is, am I allowed to deposit that check in my Roth IRA account, adding to my savings for my far-off retirement? I realize I hold no steady job ...but the check did represent "earnings".

Thanks.


Well, why don't you try to invest those money in stocks. I know it is risky investment but believe me you can earn good money from it if you do some research and refer expert for stock investments.

Think over it.....
Post Fri May 31, 2013 7:24 am
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sbutk7
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Re: Can I contribute to my Roth IRA under these circumstance  Reply with quote  

quote:
Originally posted by Anton Martin

Well, why don't you try to invest those money in stocks. I know it is risky investment but believe me you can earn good money from it if you do some research and refer expert for stock investments.

Think over it.....



As mentioned above, I do have two accounts with Schwab - one Brokerage and the other IRA - and both are fully invested in the stock market at this time. I'm just interested in contributing a little more to the latter, in order to have more of my money growing tax-free.
Post Sat Jun 01, 2013 8:34 pm
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oldguy
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quote:
one Brokerage and the other IRA - and both are fully invested in the stock market at this time. I'm just interested in contributing a little more to the latter, in order to have more of my money growing tax-free.


Your far-future wealth will be mostly affected by your investment choices, not the tax-status. Eg, if you use all 11%/yr things, and you invest $200/m for 40 years, you will have $1,500,000. And $1.5M is $1.5M whether it is in a tax-free account (roth), a tax-deferred account (IRA), or a brokerage account. True, you'll have to pay 15% taxes on the profits on you brokerage account - but worst case you'll have $1.3M leftover.
Post Sat Jun 01, 2013 9:03 pm
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sbutk7
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quote:
Originally posted by oldguy

Your far-future wealth will be mostly affected by your investment choices, not the tax-status. Eg, if you use all 11%/yr things, and you invest $200/m for 40 years, you will have $1,500,000. And $1.5M is $1.5M whether it is in a tax-free account (roth), a tax-deferred account (IRA), or a brokerage account. True, you'll have to pay 15% taxes on the profits on you brokerage account - but worst case you'll have $1.3M leftover.



I hear you, thanks.
Post Sun Jun 02, 2013 7:46 pm
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sbutk7
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quote:
Originally posted by sbutk7
quote:
Originally posted by oldguy

Your far-future wealth will be mostly affected by your investment choices, not the tax-status. Eg, if you use all 11%/yr things, and you invest $200/m for 40 years, you will have $1,500,000. And $1.5M is $1.5M whether it is in a tax-free account (roth), a tax-deferred account (IRA), or a brokerage account. True, you'll have to pay 15% taxes on the profits on you brokerage account - but worst case you'll have $1.3M leftover.



I hear you, thanks.




Now that I think about it, can you recommend a particular investment vehicle with that type of [reliable] returns? Of course, if I had a crystal ball my stock picks would already be blowing that figure out of the water.
Post Sat Jun 08, 2013 6:05 pm
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