Income to Calculate Roth IRA Contribution
Have a client whom in 2015 earned the following:
$4,915 on a 1099 as a real estate agent
$2,400 – $3,800 of money she received for odd jobs in cash that she will claim on her taxes
However, on her adjusted gross income, line 37 of her federal return, it shows negative -$237.00. Should we base her ability to make a Roth IRA contribution on her 1099 and claimed cash income ($7,315 or $7,715) or can she not make any Roth contributions due to the fact she has a negative AGI?
Thank you in advance for your help and assistance,
T. C. Martin
Permalink Submitted by Alan - IRA critic on Wed, 2016-04-13 23:11
IRA contributions are based on taxable compensation, and high AGI only serves to apply an income cap for these contributions. Negative AGI does not eliminate contributions if there is taxable compensation. In this case, the client needs to determine exactly what the amount of taxable compensation is in order to determine the maximum Roth contribution.
Permalink Submitted by David Mertz on Wed, 2016-04-13 23:22
And note that the maximum amount that can be contributed to the Roth IRA will be net profit minus the deductible portion of self-employment taxes.