huh, conversion to Roth is earned income?

[GrayHare]

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.

 

[Senator]

According to Ask The Expert: Is money transferred from Traditional IRA to... | RothIRA 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.

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.

 

[RobbieB]

Yup, it gets taxed as ordinary income.

 

[kaneohe]

According to Ask The Expert: Is money transferred from Traditional IRA to... | RothIRA 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.

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.

 

[bingybear]

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.

 

[gauss]

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

 

[pb4uski]

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.

+1 it is ordinary income but not earned income.

 

[jebmke]

According to Ask The Expert: Is money transferred from Traditional IRA to... | RothIRA 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.

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.