Foo - When starting an IRA, does the first deposit have to be from income?

I could contribute $3,000 to start up an IRA, but is that ineligible since that 3k was not from a income through an employer? I make money through a student job, but it's not that much/month (anywhere from $80-$350). :( Is there any loophole? I am 21.

I'd have to go back and look at the regs, but I believe your contribution is limited to earned income, except in the case of a spouse who doesn't work the working spouse may also put money in an account for him/her up to the earned income limitation. Therefore, a spouse who makes 50K could put 3000 in his/her name and also 3000 in husband/wife's name for a total of 6,000.

Might I suggest you look at Roth IRA's....the earnings will be tax exempt, not tax deferred.

You can only contribute to the annual limit IF you have earnings in that amount; if your parents still claim you on their taxes, you might not be able to do this - you'd have to check the rules on that.

College work-Study jobs ARE taxable income, so your income would be eligible; you would just have to file a tax return (even if you don't otherwise have to).

Go with a Roth IRA. Yearly limit is $5000, although I don't know if you have to have income or not.


Good on ya for starting early. With a Roth you can also pull out $10K for first time home buyer.

The Roth IRA has to be from earned income, too, but there is no tax deduction for it; because it's after-tax income, there is no tax on it when you take it out (after it's been in there the appropriate amount of time).

Might I suggest you look at Roth IRA's....the earnings will be tax exempt, not tax deferred.

+1
I'll be the first to admit I don't know dookie about tax laws and finance, but given my limited awareness I've concluded that there's rarely a good reason to choose a traditional IRA over a Roth IRA. If for no other reason than the Roth is a whole lot simpler to figure out.

well, the only reason to do a traditional over a roth is if you really really really need to reduce your taxable income; there's such a small margin of income where it will make a big difference that most people ARE better off with a Roth IRA.

I could contribute $3,000 to start up an IRA, but is that ineligible since that 3k was not from a income through an employer? I make money through a student job, but it's not that much/month (anywhere from $80-$350). :( Is there any loophole? I am 21.

No. There's a pre-tax limit and a post-tax limit.


Might I suggest you look at Roth IRA's....the earnings will be tax exempt, not tax deferred.

+1

The Roth should be the best strategy for when your tax rate is low (as it should be now).

The basic idea of a normal IRA is that you contribute to it when your tax rate is high and withdraw from it when your tax rate is low.

The Roth is also a hedge against the government increasing the tax rate in the future.

Wait, on my 2010 W-2 (which I filed a tax-return for myself), it says "wages, tips, other compensation = $3500"

Can't I just dump $3,499 for this year, since the gov. won't know where exactly the money is being taken from, except that it could have come from the 3,500? :)

Edit: and to the Rothies, when I said just IRA, I implied the Roth, as that is definitely the way to go.

Where is this money coming from if it's not taxed income?

You're not robbing banks or selling drugs, are you? :D

Wait, on my 2010 W-2 (which I filed a tax-return for myself), it says "wages, tips, other compensation = $3500"

Can't I just dump $3,499 for this year, since the gov. won't know where exactly the money is being taken from, except that it could have come from the 3,500? :)

Edit: and to the Rothies, when I said just IRA, I implied the Roth, as that is definitely the way to go.

had to be done by April 15, 2011. However, the 2011 earnings can be applied towards a 2011 IRA/Roth IRA.

I don't know, but I commend you for starting a retirement saving plan so early. Shouldn't you be blowing your dough on bikes, wimenz, and song? (NNITO)

had to be done by April 15, 2011. However, the 2011 earnings can be applied towards a 2011 IRA/Roth IRA.

Ohh ok, superb. SO everything from May-now I can contribute when I open, and keep contributing my paychecks. That works!

I could contribute $3,000 to start up an IRA, but is that ineligible since that 3k was not from a income through an employer? I make money through a student job, but it's not that much/month (anywhere from $80-$350). :( Is there any loophole? I am 21.

Income for US tax purposes is not regarded as received only if received from an employer, so no, you aren't restricted in funding an IRA by money paid by an employer. In other words, earned income is not only income you receive by working for an employer. You may have other qualified earnings.

A student job may be fine. Hypothetically, if you put student loan funds in an interest-bearing account, that interest would probably constitute reportable and--depending on your tax situation for being claimed on somebody else's return, and any of your credits, deductions, and exemption--taxable income to you.

US tax law treats "income" very broadly, from almost any source. Money received from illegal bribes, for example, is reportable (and taxable) income. Or money received from selling Beanie Babies to the extent that the sell price is more than the original purchase cost (and assuming the amount of income meets the annual minimum amount to be reported) (most likely would be reported as income from self-employment). Gifts you receive above the annual exemption amount. Etc.

Income for US tax purposes is not regarded as received only if received from an employer, so no, you aren't restricted in funding an IRA by money paid by an employer. In other words, earned income is not only income you receive by working for an employer. You may have other qualified earnings.

A student job may be fine. Hypothetically, if you put student loan funds in an interest-bearing account, that interest would probably constitute reportable and--depending on your tax situation for being claimed on somebody else's return, and any of your credits, deductions, and exemption--taxable income to you.

US tax law treats "income" very broadly, from almost any source. Money received from illegal bribes, for example, is reportable (and taxable) income. Or money received from selling Beanie Babies to the extent that the sell price is more than the original purchase cost (and assuming the amount of income meets the annual minimum amount to be reported) (most likely would be reported as income from self-employment). Gifts you receive above the annual exemption amount. Etc.

So if I deposit $1000 from dividends I earned from an ETF, would that be eligible after the dividends are taxed?

So if I deposit $1000 from dividends I earned from an ETF, would that be eligible after the dividends are taxed?

The tax and limit considerations are based on income (listed on your income tax forms). Whether the money comes directly from income or not doesn't matter.

The account that you deposited the $1000 dividend into doesn't distinguish that money differently than money deposited from income.

And you don't have to have income to contribute post-tax to an IRA.