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If I am eligible to contribute to several IRS-recognized tax advantaged accounts that have separate limits (HSA, 401K, 457, IRA, etc) can I fund the contributions with prior savings when my gross income is less than the combined contributions, but greater than each individual account yearly limits?

  • As answered, your contributions can't exceed payroll income (1040 line 7) or compensation (roughly lines 7,11,12,18) depending on type. However, if you have 'negative income' on lines 12-14,17,18 then your gross income as computed for tax purposes (line 22) might be less than the total of your positive income items. – dave_thompson_085 May 27 '18 at 12:10
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Well, many of the tax-advantaged plans that you are planning on investing in are funded via payroll deductions and not by cash contributions, and so you are certainly limited in all these contributions by the individual gross incomes from each payroll activity; your employer is not going to send more money to your 401(k) as an employee contribution than what the employer is paying you. With the IRA contribution which must be paid in cash to the IRA custodian, you are limited to $5500 or your total compensation (earnings such as wages), whichever is less, and so you could contribute your entire compensation (taking money from your savings to cover the SS and Medicare tax, Federal and State income tax etc deducted from your wages before you got your hands on the rest a.k.a. your take-home pay), but then, what are you going to live on? That being said, I know of several teenagers who contributed their entire compensation of $5500 or less from mowing lawns etc to their IRAs with their parents gifting them the money to cover the shortfall due to tax withholding, and of course, providing support for daily needs.

  • Re "what are you going to live on?", what about income from investments? Say I make enough from them to live on, with $5500 left over: can I contribute that $5500 to an IRA to reduce my tax bill? – jamesqf May 26 '18 at 18:30
  • @jamesqf As my answer states, you are limited to $5500 or your total compensation (earnings such as wages), whichever is less and so in the scenario you propose -- investor with sufficient investment income to live on plus an extra $5500 -- and no earned income, none of that $5500 can be contributed to an IRA. The taxpayer must have compensation (earned income such as salary or wages, self-employment income, commissions on sales, etc) in order to contribute to an IRA. For example, a student on a fellowship cannot contribute to an IRA, a student graduate assistant earns a salary. – Dilip Sarwate May 27 '18 at 0:10
  • @DilipSarwate Minor nitpick, but if filing jointly, only one spouse need have sufficient compensation for an IRA contribution. – Eric May 27 '18 at 11:41

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