Want to contribute the $5000 max for my Roth IRA, but not enough earned income?

November 7, 2012 9:35 AM

I have $5000 in my savings account, I already contributed the $2000 I earned this year. I want to contribute $3000 more from my savings at the end of this year but I am not sure if that is even allowed, since I didn't "earn" it. But then, how would the IRA or my roth IRA holder even know? I didn't even make enough income to require filing for taxes.
posted by kopi to work & money (9 answers total)

IRS regulations are pretty clear.

Typically, the custodial agent will require that, as part of your paperwork, you swear that you're eligible to contribute $5,000. Since you state here that your income is less than $5,000, it doesn't sound like you're eligible to contribute that amount.
posted by dfriedman at 9:39 AM on November 7, 2012

But then, how would the IRA or my roth IRA holder even know?

Just don't break the tax laws; it's not worth it. It wouldn't be a fun thing to explain if you were audited.
posted by grouse at 9:43 AM on November 7, 2012

The custodian of the account (in this case, your bank) files paperwork with the IRS, that's how they'd know.
posted by Calloused_Foot at 10:00 AM on November 7, 2012 [2 favorites]

What is a custodial agent? I have my IRA set up with Vanguard, is that the "custodial agent"?

My plan wasn't to sneak in more contributions. I was thinking, what if they assume I don't even have income, since I don't file taxes? What if the bank assume that I don't have a job and then fine me for contributions I already made? Hopefully they have their own system of looking through people's income history (maybe through SSN) to ensure how much they really earned. I really don't want to go out of my way to get papers and everything myself.
posted by kopi at 10:01 AM on November 7, 2012

I see, thanks calloused_foot. I assume I don't have to go about filing taxes to "prove" that I earned income then?
posted by kopi at 10:02 AM on November 7, 2012

So just to be clear:

Was your total earned income for the year $2k? (Like, if you add up all the paychecks you received, they come out to $2k?)

Or are you just saying that after expenses you've got $2k left out of your earned income? (Like, maybe your paychecks add up to $30k, but most of that money went to food and rent and bills and entertainment and so on?)

It makes a difference here.
posted by nebulawindphone at 10:05 AM on November 7, 2012

Gross income was $3000 (calculated a few months ago), and by the end of the year it's probably going to be $3500 or $4000. I put $2000 of the $3000 income into my IRA already.

$30,000 in a year, I wish lol
posted by kopi at 10:16 AM on November 7, 2012

According to the IRS you are allowed to contribute up to $5000 or your taxable compensation, whichever is smaller, per year, so I think you're fine. You may want to file an income tax return anyway as you may be eligible for the EITC, and get a few hundred dollars back. I am not a tax preparer, and this is not professional tax advice.

Edit: Damn, just realized your income will fall just short - so if you want to top up to the legal limit, put in up to $4500 or whatever your end up making. You have until next April 15th to do so for 2012.
posted by Calloused_Foot at 10:25 AM on November 7, 2012 [1 favorite]

Hey, just checking. :)

Most of the info that would go on your return, the IRS gets from a second source anyway. In particular, unless you're working under the table, your employer will tell the IRS how much they paid you this year. So even if you don't file a return, the IRS will know that you had some earned income.

On the other hand, if your IRA contribution (as reported by the bank) exceeds your earned income (as reported by your employer) then the IRS might get suspicious. Again, this'll happen whether or not you file a tax return.
posted by nebulawindphone at 10:26 AM on November 7, 2012