I know I have to work for at least $7k in order to max out my Roth, but can I use the $7k I’ve made this year via stock options? Or does it need to be a legitimate job? I want to max out my IRA and have approximately $20k saved up, but I haven’t been working a real job this year because I’m in college. I’m almost 19 years old. I would appreciate any assistance.
Eligibility to contribute to a Roth IRA is based on earned income, which includes wages, salaries, and self-employment earnings. The source of the money does not affect eligibility, simply having funds doesn’t make you eligible to contribute.
Since trading is regarded as a job, may I expect to pay fees?
Trading is only considered a job if you’re a licensed broker. Is that your employment?
If not, stop watching TikTok for investment tips. Trading with your own funds is a hobby or pastime, not a job, as you’re not paid for it and are simply hoping for a better financial future.
The same applies to passive income from rentals. Landlords do real work, but the tax code views passive income as not earned, unless you are a real estate professional with a Schedule C on your Form 1040, or a corporation that provides you with a Form 1120, 1120S, or K-1. Alternatively, if you receive a W-2, it means you are employed.
If you are not eligible to contribute, don’t do it.
However, if you are eligible, say you earn $3,000 refereeing games and receive a W-2 for it, you can use $3,000 from your birthday money for your Roth IRA. There is no direct link between the earned income and the funds you contribute, it’s all just money
You need reported earned income on a W-2 or a 1099 to contribute to a Roth IRA. Capital gains do not count as earned income.
Not totally accurate. Minors are still permitted to make contributions to their Roth accounts while receiving a fair pay below the table. The specific language escapes me at the moment, but it certainly needs to be W-2 or 1099 pay.
Any earned income that the IRS discovers on a tax return has to be disclosed.
Income is income, whether it’s from cash tips, under-the-table work, lawn mowing, babysitting, or other sources. If it’s not reported, it’s still considered income that could potentially be reported.