Is trustee draw for services "earned income?" - thus ROTH eligible

[Bongleur]

The terms of the Trust allow me to draw some amount for my services as Trustee.

So would this count as Earned Income?

Because with earned income, my wife & I could each contribute $6500 a year to our ROTHs? (or maybe only up to the amount of earned income? but still better than zero).

 

[cathy63]

Nope.

https://www.thetaxadviser.com/issue...receivedasanonprofessionalrepresentative.html

Contributions to an IRA are allowable if a taxpayer has compensation and it is includible in his or her gross income for the year (Sec. 219(b)). Under Sec. 219(f), compensation is defined as earned income under Sec. 401(c)(2). This term means earnings from self-employment with respect to a trade or business in which personal services of the taxpayer are a material income-producing factor. It appears, then, that nonprofessional executors or personal representatives who handle estates without trade or business assets cannot be deemed to be in a business themselves. Thus, the fees received by these individuals are not subject to SE tax and are not earned income for IRA contribution purposes.

 

[Sunset]

Well that really sucks.
So they want to tax you on it, as income, but you can't qualify for a retirement plan contribution.

 

[Z3Dreamer]

The bright spot is no SE tax.

 

[steelyman]

I notice they use the term “executor” which, to me, involves the settlement of an estate. I wonder if “trustee” is treated similarly? (I don’t know)

 

[pj.mask]

I would imagine if you incorporate yourself and adding the business as executor the business could pay you income. Like how a bank would manage this process.

Likely a little late if the trust is in effect but would have to pay the 13% tax (employer and employee portions) on social and Medicare