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Contributing more than earned income to Roth 401(k) + IRA

Posted: Tue Jan 30, 2018 10:42 am
by slowfi
This is a strange question, but I am wondering if someone who makes $18,500 per year and who has an employer who allows contributing 100% of pay to a Roth 401(k) or 403(b) could legally contribute 100% of their pay and still contribute $5,500 additional dollars to a Roth IRA (from accumulated savings)? That is, could they contribute $24,000 between both accounts—Roth 401(k)/403(b) and Roth IRA—despite having $18,500 in earned income?

Re: Contributing more than earned income to Roth 401(k) + IRA

Posted: Tue Jan 30, 2018 11:36 am
by Edie
I'm not an expert, but I believe this is acceptable. Consider all the threads where someone states that they're going to match their kid's investment in a Roth IRA, or straight out fund it for them up to their earnings. If this is acceptable for parents, or consider spouses who fund Roth IRAs for at home partners, it should be acceptable for anyone. The source of the Roth IRA contributions does not have to be the individual, just that they have the earned income to allow the contribution. If you put 100% into your 401k (Roth or otherwise), and your parent puts in your full contribution to the Roth IRA, that should be treated the same as pulling it from savings to do so.

Your supposition disregards social security, medicare and income tax, so I don't think you're going to get all the way to 18.5 in the Roth 401k, but that wasn't really the question :)
:sharebeer

Re: Contributing more than earned income to Roth 401(k) + IRA

Posted: Tue Jan 30, 2018 11:45 am
by kaneohe
https://ttlc.intuit.com/questions/41496 ... d-roth-ira

perhaps not the best of sources .......but it appears you can

Re: Contributing more than earned income to Roth 401(k) + IRA

Posted: Tue Jan 30, 2018 11:55 am
by blastoff
I'm also interested in the answer to this. Thanks for asking. I would assume the answer is the same whether a roth 401k or roth 403b.

Re: Contributing more than earned income to Roth 401(k) + IRA

Posted: Tue Jan 30, 2018 12:40 pm
by Epsilon Delta
The key is that there is a safe harbor for W-2 income. You do not need to worry about sharks and reefs and things that go bump in the night when you're in the safe harbor.

From pub 590A
What Is Compensation?

Wages, salaries, etc. Wages, salaries, tips, professional
fees, bonuses, and other amounts you receive for provid-
ing personal services are compensation. The IRS treats
as compensation any amount properly shown in box 1
(Wages, tips, other compensation) of Form W-2, Wage
and Tax Statement, provided that amount is reduced by
any amount properly shown in box 11 (Nonqualified
plans).
Scholarship and fellowship payments are compen-
sation for IRA purposes only if shown in box 1 of Form
W-2.

Re: Contributing more than earned income to Roth 401(k) + IRA

Posted: Mon Feb 05, 2018 10:05 pm
by slowfi
Thanks for the help on this! I was thinking this was allowed, since the Roth 401(k) or Roth 403(b) contribution is not tax-deferred, but it was difficult to find anything about it on irs.gov or elsewhere. The Intuit answer seems good enough for me.

I did forget to include social security, medicare, and income tax, but as a graduate student on an assistantship stipend, only income tax applies to me.