Non-Passive income Eligible for Roth IRA

Submitted by Tony Yang on Tue, 2024-08-13 10:50

Hello Ed Slott Forum,

I am looking at a tax return listing non-passive K-1 Income for a self-employer. The amount exceeds Roth IRA contribution eligibility, but no self-employment tax is paid from it. Can this client fund a Roth IRA?

It says non-passive so i feel it is earned income but no self-employment tax is paid so I am not sure.
Any feedback welcome! Thank you.



Submitted by Alan - IRA critic on Tue, 2024-08-13 14:59

What services did the client actually perform that are reflected in the K 1? Typically, non passive income is subject to SE tax.

When you indicate that the “amount” exceeds Roth contribution eligibility, are you referring to having earned income at least equal to the contribution limit, or having MAGI too high to allow any Roth contributions?

Submitted by Tony Yang on Tue, 2024-08-13 19:21

Thanks!

Meant to say the non-passive income is within the earned income limit allowing her to fund a Roth IRA if applicable. She works in retail store set design along with part-time DJ.

Hope this adds clarity. thank you!

Submitted by Alan - IRA critic on Wed, 2024-08-14 10:52

Perhaps the K 1 was issued by a partnership. Could she be a partner? If so, whoever prepared the partnership return should be able to explain why the K1 does not have any SE income on line 14A.

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