Based on information from my accoutant, you need to have earned income
to contribute to a ROTH IRA. He indicated that earned income is
generally income on which you paid social security taxes on.

David wrote:
- quote -


You can contribute 100% of your earned income (up to $4000) to a Roth
IRA. I think that means adjusted gross income minus unearned income.

It sounds like a problem with Taxcut. Can you disable the penalty
calculation and tell Taxcut that you are letting the IRS bill you for
the penalty? I know you can do that with Turbotax for the underpayment
penalty.

Bob

David wrote:
- quote -

David,
Something's up here...you said "small income" from a business startup,
but Taxcut allowed $0 to the Roth. If she had $10 in income from the
startup landing on her 1040, she should have had Taxcut spit out $10 as
an allowable Roth contribution.

The income from the startup, is it reported on Schedule C? Or does she
have $0 from the startup and just some other income (interest,
dividends) from investments?

If it turns out she really shouldn't have contributed, then it's not too
late for 2005 - she can take the money out of the Roth and there won't
be a penalty. She may owe tax if the contribution has gained in value
since she put it in. Due date for doing this is her tax return due date
WITH extensions. Info:
http://www.irs.gov/publications/p590/ch02.html#d0e9783

Actually, scroll up that page, you should find answers to most Roth Q's
there.

-Tad

Rich Carreiro wrote:
- quote -

This is a minor point (and doesn't affect Rich's conclusion), but in the
interest of total accuracy, the term that the IRS uses is in this
context is "compensation". In addition to wages and self-employment
income, compensation includes commissions and alimony.

(Even if someone is married that person could still be receiving
alimony:
http://www.divorcesupport.com/divorc...nent-1448.html)

- quote -

Specifically: http://www.irs.gov/publications/p590/ch01.html#d0e1046
(The section entitled "What is Compensation")

--
Mark Freeland
nNeEwTs[at]sonic.net

David <dm_fw[at]sbcglobal.net> writes:

- quote -

You have to have earned income (i.e. wages and/or net positive
self-employment income) to be able to contribute to an IRA.
If she wasn't working, and had a loss on her business, she has
no earned income and hence can't contribute anything to an IRA.

See IRS Publication 590.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Sandra Loosemore writes:
- quote -

Various kinds of income are taxable, but the only type that qualifies
for an IRA contribution is earned income, such as is reported by
employers on W-2 forms. I don't know how a self employed person reports
earned income. Is that on Schedule C?

Dave

David <dm_fw[at]sbcglobal.net> writes:

- quote -

The publication you want is here:

http://www.irs.gov/pub/irs-pdf/p590.pdf

Generally, you have to have taxable income to cover your contribution.

-Sandra the cynic

I am working through a friend's taxes on Taxcut and she has had a
small income this year due to business startup.

Taxcut states that she is eligible to contribute $0 in her Roth and as
she has contributed some cash, she is being assessed a penalty. I can
see that excessive income limits contributions, but not minimum
income.

Is this a true issue or a problem with the Taxcut program?

Thanks

P.S. Looking for a IRS form which covers this issue.