Selection of IRA type for low income salary | Ed Slott and Company, LLC

Selection of IRA type for low income salary

Individual age 19 in 2019 is a full time student has $ 3500 salary and $ 3000 capital gains income.
He files his own tax return because about $200 income tax was withheld from his salary. Also he is
shown as a dependent on his parent's return but obviously there is no exemption deduction now.
His parent made about $500,000 in 2019, therefore is better for the 19 year old to file his
own tax return for his parents to avoid tax on his $ 3,000 capital gains. The investment account
is in the name of the 19 yr old with his SS number.

1. Can the age 19 individual contribute $ 3,500 to a Roth IRA for year 2019 before july 15, 2020.
The result is he can put this money to invest without tax consequence.
2. Can he contribute $ 6,000 to the same Roth IRA instead of $ 3,500? Or there is no tax benefit to do so.
3. Is there a penalty if he contributes more than $ 3,500 to the Roth IRA

  1. Yes.
  2. No, a contribution is limited to earned income. Investment income does not qualify.
  3. Contributing more than 3500 will create an excess Roth contribution that must be removed by the due date to avoid an annual 6% excise tax.

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