ROTH IRA Contribution Requirement for Earned Income
I like to not make a ROTH IRA contribution till the money is actually earned so there is less change of over contributing.
Probably best to illustrate my question with an example:
Lets say we have earned year to date (YTD) $20,000 of this 2K has been take out a pretax deductions for insurance and other pretax deductions, 2K has been sent in for federal income tax, 1 K has been taken out for state income tax, 1k has been taken out for Medicare and SS taxes, 10k has been taken out for ROTH 401k contributions.
So to this point if I had not more income this year, would my maximum ROTH IRA contribution be 20k-2k-2k-1k-1k-10k = 4k or would it be 6K. Make the assumption we can contribute the 6k in regard to the IRS income limits.
Guess I am asking do pretax deductions, or taxes paid, or ROTH 401K contribution have to be subtracted from gross earned income to to calculate the income allowed to be contributed to a ROTH IRA?
Thanks.
Permalink Submitted by Alan - IRA critic on Sat, 2022-04-09 18:27
For a W-2 employee, IRA earned income is the Box 1 figure on the W 2 less any amount in Box 11. Not included in Box 1 are pre tax qualified plan deferrals and pre tax contributions to cafeteria plans such as healthcare FSAs and pre tax health premiums. However, designated Roth deferrals do not reduce Box 1. Since Roth deferrals do not reduce Box 1 since they are after tax, it is possible to use the same income (double dip) to make designated Roth deferrals and IRA contributions. You do not have to subtract the Roth 401k distributions from Box 1.