Do Capital Gains count as qualifying income for a Roth IRA?

Home Fairmark Forum Retirement Savings and Benefits Do Capital Gains count as qualifying income for a Roth IRA?

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  • #14878
    barnstorm
    Participant

    Do Capital Gains count as qualifying income for a Roth IRA? I’ve read conflicting answers.

    If they do count, what if I paid no tax on them because they were long term capital gains under 40k, or because they were short term capital gains but were offset by losses?

    Thanks!

    #14879
    Alan S.
    Participant

    Cap gains and other investment income does not qualify for IRA contributions. You must have taxable compensation (earned income) to make any kind of regular IRA contribution. But you do not need to have taxable compensation to convert some amount from your TIRA to a Roth IRA.

    Since cap gains do not qualify, it makes no difference if they are ST, LT, or what the tax rate on those gains is.

    #14880
    barnstorm
    Participant

    Thanks!

    There was asite called bankrate.com that seemed to say otherwise. The say, “Yes, capital gains are included in the modified adjusted gross income, or MAGI, calculation for purposes of determining whether you can contribute to a Roth IRA”
    https://www.bankrate.com/finance/taxes/do-roth-ira-income-limits-exclude-capital-gain-or-unearned-income.aspx#:~:text=To%20be%20eligible%20to%20contribute%20to%20a%20Roth%20IRA%2C%20your,any%20time%20during%20the%20year.

    #14882
    ruth
    Participant

    Alan is correct. First, to be eligible to make a Roth IRA contribution you must have earned income (compensation). Second, even if you have compensation, you can’t make a contribution if your modified AGI exceeds the limit for your filing status. Modified AGI includes all your income, including capital gains, except income from a Roth IRA conversion. See page 39 of Publication 590-A at https://www.irs.gov/pub/irs-prior/p590a–2019.pdf.

    #14883
    barnstorm
    Participant

    Ah, that explains why bankrate said what they said. They were not saying capital gains income is enough, but that capital gains income counts towards your modified AGI for overall eligibility. Thanks!

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