Roth Question
Is pension income considered taxable compensation? I guess a better question is what is excluded from taxable compensation?
Is pension income considered taxable compensation? I guess a better question is what is excluded from taxable compensation?
Permalink Submitted by Jim E WALLS on Wed, 2008-03-05 19:21
hmcdaniel – Please excuse me if I have mis-read your question, but my take on it is that compensation is that form of income which one receives for services rendered (wages, tips, etc), whereas income is a broader concept which includes anything of value which one receives from nearly any source (i.e., compensation PLUS dividends, interest, capital gains, pension benefits, IRA distributions, gambling winnings, inheritance, treasure finds, etc.) Of course the IRS (Govt, really) allows some adjustments to this income by specifically identifying certain deductions which reduce this gross income to an adjusted gross income, and finally to a taxable income. If you are interested in the nitty-gritty, probably a good starting place is maybe the Wikipedia.
To address your implied question, I believe that you will find that your pension benefits are, in themselves, taxable as income. Further, I also feel that both your pension benefits and any RMD which you are required to take will have to be included in the calculation of your tax liability.
Hope this really address your question.
Jim1B
Permalink Submitted by Alan Spross on Wed, 2008-03-05 19:47
I believe his question regarding taxable compensation relates to the definition inclusions that permit an IRA contribution to be made from such income.
In the usual sense, a pension is not included in such definition because it represents a benefit that was earned in a prior rather than the current year. The usual measures of taxable compensation from which to fund a regular IRA contribution include the amount shown on a W-2 Box 1 less any amount in Box 11, commission income and self employment income. Alimony and separate maintenance payments are also included, as is non taxable combat pay.
In summary, a retired person collecting a pension, SS and/or investment income is not eligible to make an IRA contribution
Permalink Submitted by M. Heath McDaniel on Wed, 2008-03-05 20:16
Thanks for the help. It was a question of income in relation to Roth conribution.
Permalink Submitted by Scott Cousino on Tue, 2012-12-18 16:25
More specifically, if a person has only pension, social security, or other unearned income but has reportable W-2G gambling winnings, can they make an IRA/Roth IRA contribution up to the maximum amounts (i.e. $5000 or $6000/yr with catch-up up to amount “earned”)? This question is really whether the IRS considers gambling winnings income such that we can defer it using an IRA or shelter its growth using a Roth IRA. Thanks!
Permalink Submitted by Alan - IRA critic on Tue, 2012-12-18 17:36
No, that would be a losing wager!Form W-2 is a very different form compared to W-2G, where Box 1 is “Gross Winnings”. The W-2 hold harmless for earned income applies only to actual W-2 Box 1 which is “Wages, Tips, and other compensation”.
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