I'm a graduate student with several kids. Right now I'm trying to leverage my temporarily diminished income by "backdoor" rolling-over my 401k account to a Roth IRA account, without inadvertently disqualifying myself for EIC. My understanding is that any amount I rollover will be counted as "income" for tax purposes--but what kind?
Specifically, for EIC, increases in income like "wages" increases the EIC for a certain range and decreases it for sufficiently high wages (see here). (In my case, I'm assuming money from a stipend is similarly considered)
However, sufficiently high income of other types, e.g. more than $3,500 in "investment income", can disqualify a person altogether. (Aside: It seems the money made from investments in retirement accounts does not count, since this is not counted in your AGI)
- Since the money moved from a pre-tax 401k to a post-tax Roth IRA is considered taxable "income" (even if it had no return), would this be counted as disqualifying, "investment" income? Would it alternatively be considered the same as "wages"? What if there were earnings?
- Presumably returns on 529 funds that were distributed would be considered investment income?