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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15590
Experience:  15years with H & R Block. Divisional leader, Instructor
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I was on Short Term disability with the company I work for.

Customer Question

I was on Short Term disability with the company I work for. I continued to put $250 into an IRA Roth during the 6 months I was off. Is this legal?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.


To be able to contribute to an IRA you must have earned income.

Long-term disability benefits received prior to minimum retirement age is considered earned income but SHort Term is not.

Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2

The contributions you have made would not be recognized as allowed.

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Expert:  Robin D. replied 1 year ago.

When your total IRA contributions (both Traditional and Roth combined) are greater than the allowed amount for the year in your situation, and you have not withdrawn the excess contributions, you must complete Form 5329 to calculate a 6% penalty tax on the excess contribution.

You can withdraw the "excess contributions" and if you do this before April 15 you would not be penalized.

If you do not withdraw the excess amount, you will pay the penalty again in the following year.

Expert:  Robin D. replied 1 year ago.

Just checking back now that you have read my answer to see if you need clarification.