Does an RMD count as “earned income” for purposes of Roth contributions?
Suppose Client has Social Security and pension income coming in, and no other income.
That stuff isn’t earned income so the client can’t make a Roth contribution that year.
Now suppose that Client has taken a $10,000 RMD this year. Does the RMD count as “earned income” that would allow for a $7,000 Roth contribution? I don’t think so, but am being challenged otherwise.
Permalink Submitted by Alan - IRA critic on Tue, 2022-04-12 16:40
You are correct. Neither an RMD or any other plan distribution is treated as earned income. However, client might use this income to pay the taxes on a Roth conversion completed after the RMD was distributed for a particular account. That would increase the Roth balance, but taxes would be due for both the RMD and the additional conversion in exchange for future tax free earnings and future reduced RMDs due to smaller TIRA balance.
A client who files jointly however might be able to make a spousal Roth contribution using spouse’s earned income, providing MAGI is not too high.