Earned Income for IRAs
I am retired but received $12,000 via a 1099 as an Independent Contractor ( a business with expenses also). All other income is Pensions and Social Security. Because of the $12.000, my wife and I contribted $5,000 each to our Roths. But when I do my Schedule C business form I end up with only about $4,500 going to my 1040 as business income. Am I in trouble?
Permalink Submitted by Alan Spross on Tue, 2008-02-12 23:31
What you have is an excess Roth IRA contribution if $4,500 is the business income figure on line 12 of Form 1040. You must have 5,500 in total Roth IRA contributions returned between the two of you plus any allocated earnings. Any earnings allocated to those contributions will be taxable, but only penalized if you are under age 59.5. You would just tell the IRA custodians that you need to withdraw the funds as a correction of an excess contribution problem, and they should code the 1099R appropriately.