I recently received an account transfer cash incentive award. The brokerage firm deposited the cash into my traditional IRA; however, I am concerned as I will not have any earned income for 2022 and I don't know how the IRS will treat the deposit. Should it be deposited into my Roth or taxed brokerage account instead? The firm offered to put the award in whichever account I direct.
For reference, I am in 12% federal bracket due to govt pension (1099-R). 4.25% in Michigan.
I would appreciate any IRS.gov links discussing cash deposits by third-party for someone with no earned income in the tax year of the deposit. My brief irs.gov search suggests any IRA deposit is an excess contribution which has 6% penalty and 10% early withdrawal penalty (under 59 1/2). While a web search leads to a 2012 blog suggesting the cash is seen as interest earned on the account and would be Roth never taxed dividends, traditional dividend tax deferred until withdrawal, or taxed now as 1099 unearned dividend income in brokerage account. With wildly different tax treatment I thought it's time to consult folks that have dealt with this before.
For reference, I am in 12% federal bracket due to govt pension (1099-R). 4.25% in Michigan.
I would appreciate any IRS.gov links discussing cash deposits by third-party for someone with no earned income in the tax year of the deposit. My brief irs.gov search suggests any IRA deposit is an excess contribution which has 6% penalty and 10% early withdrawal penalty (under 59 1/2). While a web search leads to a 2012 blog suggesting the cash is seen as interest earned on the account and would be Roth never taxed dividends, traditional dividend tax deferred until withdrawal, or taxed now as 1099 unearned dividend income in brokerage account. With wildly different tax treatment I thought it's time to consult folks that have dealt with this before.