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? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 11:44 am
by Lafder
My daughter's W-2 ( for her part time restaurant work where they pool tips and distribute with their paycheck ) lists

Wages tips other compensation $6935

Social security wages $3814

Medicare Wages and tips $7017

I would like to help her set up an IRA or Roth.

Which of those numbers represents the max contribution she can make?

She is 19. Would you do a Roth or IRA? I was thinking Roth.......

Lafder

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 12:04 pm
by dunkmachine
Technically it's based of one's modified AGI. You can use Form 1040 to calculate that using the W-2.

Definitely do a tax deductible traditional IRA first before Roth IRA.

**I edited this to reflect that maybe it's not a definite. With the 10% tax rate, it's likely better to do Roth.

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 12:16 pm
by nolesrule
If this is her only earned compensation then simply the lesser of the max contribution amount for the tax year or Box 1 of the W-2.

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 12:40 pm
by mark1623
dunkmachine wrote:
Tue Feb 05, 2019 12:04 pm
Technically it's based of one's modified AGI. You can use Form 1040 to calculate that using the W-2.

Definitely do a tax deductible traditional IRA first before Roth IRA.

**I edited this to reflect that maybe it's not a definite. With the 10% tax rate, it's likely better to do Roth.
Wouldn't she be in the 0% tax rate?

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 1:48 pm
by Lafder
Box 1 is "wages,tips,other $6935"

I believe she is still a dependent as she lives at home and we cover car, living expenses.

Does that effect the taxes she pays?

We have not filed yet. Is there an advantage to her to not being a dependent? We have not given her cash more than she made. But surely her living expenses we covered for the year exceed,are worth more than she made. I suppose if I give her cash for a retirement account, it's equal to what she made last year, but it is 2019 already.

Lafder

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 1:52 pm
by Retired2013
IRA limits for individual is $5,500 so $5,500. She is in the 0% bracket so do a ROTH account. Tax bill should be 0.00

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 1:57 pm
by Lafder
They deducted state and federal taxes of about 400 and 100. Hopefully she can get those back.
:)

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 2:02 pm
by oldcomputerguy
Retired2013 wrote:
Tue Feb 05, 2019 1:52 pm
IRA limits for individual is $5,500 so $5,500. She is in the 0% bracket so do a ROTH account. Tax bill should be 0.00
Isn't it $6,000 for 2019?

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 2:06 pm
by nolesrule
oldcomputerguy wrote:
Tue Feb 05, 2019 2:02 pm
Retired2013 wrote:
Tue Feb 05, 2019 1:52 pm
IRA limits for individual is $5,500 so $5,500. She is in the 0% bracket so do a ROTH account. Tax bill should be 0.00
Isn't it $6,000 for 2019?
Sure, but if you're looking at a 2018 W-2, then the assumption is it's a 2018 contribution.

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 2:22 pm
by oldcomputerguy
nolesrule wrote:
Tue Feb 05, 2019 2:06 pm
oldcomputerguy wrote:
Tue Feb 05, 2019 2:02 pm
Retired2013 wrote:
Tue Feb 05, 2019 1:52 pm
IRA limits for individual is $5,500 so $5,500. She is in the 0% bracket so do a ROTH account. Tax bill should be 0.00
Isn't it $6,000 for 2019?
Sure, but if you're looking at a 2018 W-2, then the assumption is it's a 2018 contribution.
:oops: You're absolutely right. I didn't trigger on that, I was thinking of contributions for this year.

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 3:56 pm
by kaneohe
Lafder wrote:
Tue Feb 05, 2019 1:57 pm
They deducted state and federal taxes of about 400 and 100. Hopefully she can get those back.
:)
You will need to file a tax return to get those back..........so file even if technically she doesn't have to.

Re: ? Tips as income for IRA/Roth

Posted: Tue Feb 05, 2019 11:30 pm
by Lafder
Thank you all.

I had the same thought about 6000 max. doh.... that is for this year :)

lafder