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which income number to use when funding Roth contribution
Old 02-20-2019, 02:22 PM   #1
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which income number to use when funding Roth contribution

Dear Child is a graduate student who made $13,000 last year. On tax form, these are the numbers (using whole numbers for easy illustration):

Line 1: Wages, Salaries. $5,700
Line 6: Total Income: $13,000
Line 7: Adjusted Gross Income: $8,700

I already funded $4,400 HSA account last year on behalf of this child. I would like to also fund a Roth IRA (deadline 4/15/19), but not sure which number to use?

If Line 6 is the number, I will fund the full $5,500.
If Line 7 is the number, I can only fund $4,300.
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Old 02-20-2019, 02:25 PM   #2
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There are special rules for graduate students and IRAs:

Grad Student Taxes and IRAs
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Old 02-20-2019, 02:30 PM   #3
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Asking the obvious here, but I'm assuming Dear Child is covered by a high-deductible healthcare plan?
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Old 02-20-2019, 02:40 PM   #4
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Originally Posted by MBAustin View Post
There are special rules for graduate students and IRAs:

Grad Student Taxes and IRAs
Dear Child is filing Single, and was covered by family HDHP plan whole year.

Thanks for that link.
Looks like we need to reduce the $4,000 scholarship/grant from the total $13,000. The rest $9,000 or so are salary, summer job, part time job.

The Roth contribution allowed is therefore $9,000 - $4,400 (HSA) = $4,600.
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Old 02-20-2019, 05:11 PM   #5
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You can put the full $5500 into the Roth IRA since the earned income was more than that. There's no need to subtract the HSA contribution since that money does not have to come from Dear Child's income.

And actually, since Dear Child was covered by a family HDHP, the HSA contribution limit is $6900 even though Dear Child is single. This is a nice little loophole that you can take advantage of if you want to.
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Old 02-20-2019, 05:58 PM   #6
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Originally Posted by cathy63 View Post
You can put the full $5500 into the Roth IRA since the earned income was more than that. There's no need to subtract the HSA contribution since that money does not have to come from Dear Child's income.

And actually, since Dear Child was covered by a family HDHP, the HSA contribution limit is $6900 even though Dear Child is single. This is a nice little loophole that you can take advantage of if you want to.
Thank you for that information. You answered my question in a pleasant way, for Dear Child.
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Old 02-20-2019, 10:19 PM   #7
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I guess that I don't see much magic to a HSA unless DC has health issues. I like fully funding a Roth but beyond that why not just gift to a taxable account? If it is invested in domestic equities then dividends and LTCG would all be tax free and you don't have the constraints of a HSA.
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