EITC eligibility with tIRA to rIRA Conversion & no earned income

Forum|Forum|5 years ago
July 17, 2020
1 reply
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Hi,

I made a contribution to a traditional IRA in 2019 and converted it in 2020 to a roth IRA. I will now owe taxes on that conversion next year come tax time. I will be a student all of 2020 with no income. Will I be eligible for the EITC with this conversion or is that conversion not considered "earned income" meaning it won't qualify for EITC. I am assuming the conversion does not count as "earned income". I am asking because I am trying to keep my investment income below the threshold for EITC if I would qualify. Thank you!

Best answer by Opus 17

You are not eligible for EIC if your unearned income is more than $3600. An IRA conversion is unearned income.

Also, if you have zero earned income, you also will not receive any EIC. EIC is paid on a sliding scale where if you have no earned income you don't get any (because it is a credit for earned income only), then as your income increases you get some EIC, then as your income continues to increase you get less until it phases out (because you need it less).

Basically, think of EIC as a partial rebate for social security tax for low income workers, because social security is a regressive tax (charged the same on high and low income workers). If you don't have social security-taxable income (earned income), you don't get EIC.

Opus 17Answer

Employee

You are not eligible for EIC if your unearned income is more than $3600. An IRA conversion is unearned income.

1maximillian

For any who may google into this page

>> You are not eligible for EIC if your unearned income is more than $3600

This isn't true. There is a maximum investment income limit ($11k for 2023), but there are many kinds of income that are neither earned income nor investment income, for example, IRA and 401k distributions, gambling winnings, most non-commercial rental income, etc. These kinds of unearned income count towards the AGI limit ($53,120 for married, family of 2 in 2023), but they don't count as investment income.

See the IRS EIC qualification simulation for your specific situation. It is at:

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc