exactly how much can my daughter contribute to a Roth IRA?

[FIREshrink]

Daughter is a teenage dependent and has her first job. She'll make around $100 per week maybe more by summer.

Let's say she makes exactly $5000 this year. No state income tax. But there are state payroll taxes of say 2% = $100 and FICA of 7.65% = $382.50.

How much can she contribute to a Roth? $5000 or a lesser amount?

She has agreed to the daddy match and plans to contribute half of her earnings, and we will match.

[JBME]

she cannot put in more than $5k this year if she makes $5k

[FIREshrink]

yes but can she put in $5000 or is it reduced by the amount of any of her taxes such as FICA or state payroll?

[spiritrider]

The maximum IRA contribution is the lessor of the IRA contribution limit and IRA compensation. Which in your daughter's case is her W-2 Box 1 wages.

In other words it is gross pay not net pay after deductions. The money to make IRA contributions does not actually have to come from her paychecks.

Not that I recommend it, but the contributions can come 100% from you. Your plan to match her contributions is a sound one

[The White Coat Investor]

Yea, it's weird but it's gross, not net. Where that money is supposed to come from I don't think anyone in Congress ever thought about but that's how the rules are written.

[FI GYN]

Last year we actually got tripped up with my son's DoorDash income. Had already put his entire income (yes it was from me, matching) to a Roth. Then we did the taxes (H&R Block software) and realized that because DD is 1099 income - they're considered self-employed - there was self-employment tax involved. We had to go back into the Roth and "back out" about 50 bucks (not a big deal but with IRS you never know)

So just something to watch, is it W2 or 1099 income.

[MPMD]

Last year we actually got tripped up with my son's DoorDash income. Had already put his entire income (yes it was from me, matching) to a Roth. Then we did the taxes (H&R Block software) and realized that because DD is 1099 income - they're considered self-employed - there was self-employment tax involved. We had to go back into the Roth and "back out" about 50 bucks (not a big deal but with IRS you never know)

So just something to watch, is it W2 or 1099 income.

that's a really good tip
i would have made the same mistake