Unfortunately, I don't see a way out.Thanks to you both for the input. Alan, I have come to this realization with great chagrin, as it would've avoided the complications experienced right now. Sadly, due to my astronomical tuition bills, my $33k gross income would not amount to greater than 50% of my support.
That being said, you're getting at the point I'm trying to make here: by a conventional definition of "earned", I earned all $33,000 of the wages in question by going to work and clocking in. Now I am in a position of needing to demonstrate this to the IRS. My parents certainly gifted me the $13500 to cover my contributions to the at-the-time standard 401(k), but it's my understanding that this should be considered a gift, and thus not taxed as earned/unearned income. With respect to the transfer from my parents, is this correct?
If my characterization of the gift from my parents is correct, its it possible for me to classify the 1099-R amount in a manner that does not subject that amount to the kiddie tax? I fully understand that there is tax liability on these monies, but how can I assess the liability with respect to my own tax bracket rather than my parents' bracket?
Reading the instructions for 8615, the relevant paragraph seems to be the following, at the top of page 3:My social security wages are ~$29000 (the TA'ing income being FICA/SS exempt), so clearly the IRS still considers my income as a wage in at least one respect.Earned income includes wages, tips, and other payments received for personal services performed.
Or, most succinctly: Have I just screwed myself to the tune of 1400 bucks by executing this in-plan rollover?
First, even though Box 1 of your W-2 is probably far less than your gross earned income, only the Box 1 (taxable) amount counts as earned income, which would impact the ratio to support. However, it appears that your tuition counting as support is high enough that even using your gross earned income would not exceed the 50% of support test.
Then there is the Form 8615 definition of unearned income:
Doing an in plan Roth rollover is likely extremely rare for a student, but there is no carve out in the above definition that would allow any form of taxable pension income reported in Box 2a of a 1099R to be excluded from unearned income. Kiddie taxes are frequently triggered by young people inheriting IRAs from their parent or grandparent, from which RMDs can trigger the kiddie tax in the same manner as the 1099R you received.Unearned Income
Unearned income is generally all income other than salaries, wages,
and other amounts received as pay for work actually performed
(earned income). It includes taxable interest, dividends, capital gains
(including capital gain distributions), rents, royalties, pension and
annuity income, taxable scholarship and fellowship grants not
reported on Form W-2, unemployment compensation, alimony, the
taxable part of social security and pension payments, and income
(other than earned income) received as the beneficiary of a trust.
If you are in the same situation this year, suggest you change any 401k deferrals to Roth ASAP.
Statistics: Posted by Alan S. — Sun Mar 24, 2024 9:36 pm — Replies 4 — Views 224