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Author: ginfish Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Roth Eligibility Date: 12/28/2004 9:28 AM
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this is my first post since I am A new Fool and a new to investing. Do not want IRA. My wife 56 years old. Annuity from forced retirement United Airlines from Met Life + $5000 earings part time job. Federal tax taken from annuity. Me, 55 years old, on 100% disability compensation (not pension)from veterans admin. No federal tax deducted on payment but tax due on filing income tax at end of year. Am I eligible for anything? we have more than enough $$ to support ourselves with the monthly payments. Thanks Eddie
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Author: dsemmler Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43754 of 76398
Subject: Re: Roth Eligibility Date: 12/28/2004 3:02 PM
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Eddie,

You may want to post over at the Tax Strategies board for further clarification. That board can be found here:

http://boards.fool.com/Messages.asp?mid=21819075&bid=100155

In order to make an IRA contribution, you must have earned income. So the question then becomes whether or not your disability compensation counts as earned income. My initial assumption was that it does not count, but I question that because you are paying federal taxes and it may be considered earned income. For that reason, I refer you to the Tax Strategies board listed above where people have more knowledge of the tax guidelines.

FYI, a quick Google turned up the following:

http://www.unclefed.com/Tax-Help/HTML/p596/ch01.html

If you retired on disability, benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age.

Disability insurance payments. Payments you received from a disability insurance policy that you paid the premiums for are not earned income. It does not matter whether you have reached minimum retirement age. If this policy is through your employer, the amount may be shown in box 12 of your Form W–2 with code “J.”

Hope that helps get you started in the right direction.

dt

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Author: WPatch Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43835 of 76398
Subject: Re: Roth Eligibility Date: 1/3/2005 1:35 AM
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ginfish wrote:

this is my first post since I am A new Fool and a new to investing. Do not want IRA. My wife 56 years old. Annuity from forced retirement United Airlines from Met Life + $5000 earings part time job. Federal tax taken from annuity. Me, 55 years old, on 100% disability compensation (not pension)from veterans admin. No federal tax deducted on payment but tax due on filing income tax at end of year. Am I eligible for anything? we have more than enough $$ to support ourselves with the monthly payments. Thanks Eddie

I reply:

Since your wife has $5,000 in earnings from her part time job and that is the total amount of earned compensation between you, you may invest up to that actual amount(from W2) between the two of you for your combined IRAs, no more than $3500 for each person for 2004.

Unless you wife was a top executive at United, your Modified AGI should be below the $150,000 lower limit which would otherwise allow each of you to add up to a full $3500 to a Roth. If you are in between $150,000 and 160,000 in MAGI you would have to refer to the worksheets in Pub 590 Individual Retirement Arrangments available at www.irs.gov/
Since neither of you is employed this year by an employer with an active retirement plan, you should both be eligible for a fully deductible traditional IRA.

Another tax break available to many taxpayers of modest means who are able to contribute to IRAs is the Retirement Savings Tax Credit. It may be better for some taxpayers to fine tune contributions beween traditional deductible and Roth IRAs to get maximum deferral for least tax.

Bill

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