We run accross this term in IRS popular literature, notably Retirement topics - IRA contribution limits. Have also seen discussion of contribution rulez with annual limit based upon AGI, or MAGI.
What I am trying to understand is, what sort of “income” must one have to enable contribution. The popular belief is that victim must do something like work a job, but htere we have other terms that the IRS uses to dance around.
Example: Joey Bag 'O Donuts works no job but gets $40k in taxable Socialist “security” money and takes another $40k from his TiRA. Joey’s AGI is 60k or better, so what prevents him from contributing the annual limit into his Roth IRA?
You are required to have earned income to make a Roth contribution. That is generally wages, fee income and investment income (cap gains, dividends and interest, not IRA or 401k or withdrawals).
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Thank you sir. That is consistent with what I have long believed.
Now upon reading the above mentioned official literature, it mentions AGI, and we have also seen the “taxable compensation” term as well as “earned income.” Do you have any clue there they are more specific so as to declare that “earned income” is required? One would think it would be in the Contribution Limits paper but I do not find…
Upon re-thinking, I would suggest that withdrawing from one’s TIRA is IDENTICAL to so-called “earned income.” Reason being that is exactly how it got there in the first place! Victim (tax payer) chose to “contribute” to IRA or 401K part of his so-called wages, and in so doing defer tax on that part of what he traded labor for. So in my twisted thinking, TIRA withdrawal is merely “earned income” but deferred for ever how long it was in there…
This is the IRS Publication on contributions to Roth IRAs. My best translation is that a contribution to a Roth has to come from money that has already been taxed. RMDs or other IRA withdrawals have not yet been taxed.
I respect Jim’s opinion just as you do, but this kind of question is also good fodder for ChatGPT.
Since the IRS and the Congress love having a tax code that is five times the length of the Bible, we either need a lawyer or many gigawatts of cumulative processing power to figure out where things are.