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Posted by bono9763@yahoo.com on June 20, 2006, 2:12 am
Please log in for more thread options ehw6 wrote:
> I have a question regarding the Roth IRA contribution limit.
> I made a contribution of $3000 to my 2005 Roth IRA before
> the April 17 2006 deadline thinking the limit for me was
> $4000 (I don't have other retirement accounts such as
> traditional IRA, etc). The other day I was reading
> Publication 590 and realized I might have made a mistake.
> Here's what Pub. 590 says about the Roth IRA contribution
> limit:
>
> Roth IRA contribution limit. If contributions were made on
> your behalf only to Roth IRAs, your contribution limit for
> 2005 is generally the lesser of: $4,000, or Your taxable
> compensation for the year.
>
> The term "taxable compensation" in the second one is very
> confusing to me. My modified AGI for Roth IRA purposes was
> low enough so it shouldn't affect anything. My uncertainty
> is the following. My AGI (line 37 of Form 1040) was so low
> that after taking the $5000 standard deduction and $3200
> exemption my taxable income (line 43 of Form 1040) was zero,
> which means I got all my year 2005 income tax back. Do this
> mean my "taxable compensation" for 2005 was also zero and
> thus I should have made zero contribution to my 2005 Roth
> IRA since zero is the lesser of $4000 and my taxable
> compensation for the year? Pub. 590 only gives the
> definition of "compensation", not "taxable compensation".
> I'm guessing the latter is different than another term
> "taxable income" because tax laws usually use terms
> precisely. I even email IRA and got a reply. But in the
> reply the employee went on and on with explanations about
> "compensation" instead of "taxable compensation", which is
> useless to my case. So I'm turning to this forum to seek
> some clarifications on my question. Please help me
> determine what my contribution limit for 2005 Roth IRA
> really was. Thanks a lot!
Taxable compensation is any compensation on which you pay taxes.
Generally, this is compensation reported to you on a W-2 and reported
on your 1040 on line 7, and net income from self-employment, reported
on line 12 of your 1040. So your W-2 income and net income from
self-employment had to have been at least $3000 in order for you to
make a contribution to your Roth IRA. If you are married and filing
jointly, you can include compensation from your spouse, so that the sum
of line 7 (wages) and line 12 (business income) must be equal to or
greater than the total of IRA contributions for both of you.
Dennis
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