What is the max Roth IRA contribution when your self-emp. income is $5,000 but have $1,900 in deductions?

Question

Assuming that a self-employed person makes $5,000 net (as reported on the K-1, partnership income form). However, the person have medical expenses for the year of $1,900, which she intend to claim as medical deductions on the tax return form. Can that person still contribute the max of $4,000 to her Roth IRA account?

Does the IRS require simply a minimum of $4,000 in compensation (i.e. total income received from the self-employment) or the higher hurdle of $4,000 in Adjusted Gross Income?

Answer 1

Basics for Roth IRA are: $4,000 maximum annaul contribution and a $1,000 catch-up contribution if at least age 50, phased out for a single individual with MODIFIED AGI between $95,000 and $110,000, for joint filers between $150,00-$160,000.

Assuming your partnerhsip earnings are the only source of income for you, then you fall within the limits and can contribute up to the maximum of your earnings up to $4,000 (in your case, you have $5,000 in "compensation").

If the medical expenses are expenses then those are deductible under "itemized Deductions" if you itemize. If the medical expenses are insurance then you can deduct them from your income to get to your Modified AGI.

Check with your accountant/CPA for further answers. Also, there may be limitations if you worked elsewhere that offered a retirement plan even if you chose not to participate in it.

Answer 2

That person can contribute the maximum of $4,000 to her IRA because her compensation is considered $5,000 for the year.

Answer 3

If your total income is $5000, you can put all of it away. Since you only have $1900 in medical bills, it isn't enough to use as an itemized deduction since the standard deduction is higher.