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huh, conversion to Roth is earned income?
11-02-2016, 08:51 PM
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#1
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,877
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huh, conversion to Roth is earned income?
According to http://www.rothira.com/ask-the-expert/q/10008 converting from tIRA to Roth is earned income. I don't think so. Anyone else have an opinion?
If it were earned income, doing such a conversion would provide a way FIREEs without any other earned income could generate enough earned income to contribute to an IRA.
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11-02-2016, 08:55 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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Quote:
Originally Posted by GrayHare
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I think he means earned, as in "you have to pay income tax on it". If it was really 'earned income', you would also have to pay FICA.
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11-02-2016, 09:11 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2016
Posts: 8,968
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Yup, it gets taxed as ordinary income.
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11-02-2016, 11:08 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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Quote:
Originally Posted by GrayHare
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In fairness to the "author", the term "earned income" was used by the questioner, not the author. Still, the author should have caught the misuse of the word and corrected it.
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11-03-2016, 06:31 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Dec 2014
Posts: 2,509
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If one has a tax basis in the IRA, this provides another difference as prorated portion of the conversion will not be taxed. So there are obvious differences from earned income. If referring to income tax, then employment tax may be considered beyond the scope. I can see why one might use "treated like ordinary income" as the income tax rate does match. However, there are some differences like those noted above or in this post. The wording in the article is unfortunate.
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11-03-2016, 06:54 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Aug 2011
Posts: 3,594
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I usually try to point out potentially misleading statements if possible when I see them. Doesn't seem to be easy for the site mentioned.
That being said, if an adult makes a financial decision (ie making an annual IRA contribution because they had "earned income" from only a Roth conversion) based on what they see on only one, non-authoritative site on the Internet then they probably deserve the consequences that they may incur.
-gauss
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11-03-2016, 11:44 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Quote:
Originally Posted by kaneohe
In fairness to the "author", the term "earned income" was used by the questioner, not the author. Still, the author should have caught the misuse of the word and corrected it.
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+1 it is ordinary income but not earned income.
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11-03-2016, 03:30 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 1,653
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Quote:
Originally Posted by GrayHare
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Actually, the relevant term used to qualify for an IRA contribution is "compensation" and the guidelines are quite clear on what is and isn't compensation. For example, my deferred bonus distribution, despite the fact that it would have been considered compensation if I took it in the year it was granted, is not considered compensation for the purposes of contributing to an IRA.
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