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Roth IRA for prisoner
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Roger Fitzsimmons
Oct 21, 2017, 4:51:34 PM10/21/17
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I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
--
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I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Alan
Oct 22, 2017, 1:07:05 AM10/22/17
to
On 10/21/17 1:50 PM, Roger Fitzsimmons wrote:
> I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
>
> I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
>
> Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
>
I'm about 90% positive that work performed by a prison inmate is not
> I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
>
> I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
>
> Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
>
considered employment by IRC Section 3121. As such, it would not be
taxable compensation for purposes of making an IRA contribution.
Stuart O. Bronstein
Oct 22, 2017, 1:32:06 AM10/22/17
to
Alan <temp...@vacationmail.com> wrote:
> Roger Fitzsimmons wrote:
>> I have a friend who is in her early 20's and incarcerated for
>> probably another 2-3 years. Despite making a horribly bad choice
>> a few years ago, I think she's basically intelligent,
>> responsible, and has a good set of values. I'd like to introduce
>> her to the idea of investing, saving, and patiently accumulating
>> assets for the future.
>>
>> I'd like to (with her permission of course) open a Roth IRA for
>> her, and contribute to it the amount she earns at her prison job.
>> I don't know exactly how much it is, but probably $250-$500 a
>> year. I do know of a custodian who will permit me to create an
>> account with a modest amount of money. Obviously, she doesn't
>> currently file a tax return; I have no idea if she gets a W-2 or
>> not.
>>
> Roger Fitzsimmons wrote:
>> I have a friend who is in her early 20's and incarcerated for
>> probably another 2-3 years. Despite making a horribly bad choice
>> a few years ago, I think she's basically intelligent,
>> responsible, and has a good set of values. I'd like to introduce
>> her to the idea of investing, saving, and patiently accumulating
>> assets for the future.
>>
>> I'd like to (with her permission of course) open a Roth IRA for
>> her, and contribute to it the amount she earns at her prison job.
>> I don't know exactly how much it is, but probably $250-$500 a
>> year. I do know of a custodian who will permit me to create an
>> account with a modest amount of money. Obviously, she doesn't
>> currently file a tax return; I have no idea if she gets a W-2 or
>> not.
>>
> I'm about 90% positive that work performed by a prison inmate is
> not considered employment by IRC Section 3121. As such, it would
> not be taxable compensation for purposes of making an IRA
> contribution.
The only things I've been able to find (after a quick look) deal with
> not considered employment by IRC Section 3121. As such, it would
> not be taxable compensation for purposes of making an IRA
> contribution.
withholding employement taxes from the wages of inmates. Sometimes
the withholding taxes apply, sometimes they don't. But when they
don't it's not because the money isn't earned income - it's because
there is some exemption. But payments for prison labor are still
earned income. Section 3121 doesn't discuss prisoners or prison
labor at all, as far as I can tell.
--
Stu
http://DownToEarthLawyer.com
ira smilovitz
Oct 22, 2017, 8:42:38 AM10/22/17
to
On Sunday, October 22, 2017 at 1:07:05 AM UTC-4, Alan wrote:
> On 10/21/17 1:50 PM, Roger Fitzsimmons wrote:
> > I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
> >
> > I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
> >
> > Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
> >
> I'm about 90% positive that work performed by a prison inmate is not
> considered employment by IRC Section 3121. As such, it would not be
> taxable compensation for purposes of making an IRA contribution.
>
> --
While I don't share Alan's confidence level (not that I disagree - just that I know nothing about the classification of prison labor), I do share his caution that you need to confirm whether her earnings are considered compensation for the purposes of qualifying for an IRA contribution.
> On 10/21/17 1:50 PM, Roger Fitzsimmons wrote:
> > I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
> >
> > I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
> >
> > Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
> >
> I'm about 90% positive that work performed by a prison inmate is not
> considered employment by IRC Section 3121. As such, it would not be
> taxable compensation for purposes of making an IRA contribution.
>
> --
Once that hurdle is crossed, there are no other legal issues that I'm aware of.
Ira Smilovitz, EA
Taxed and Spent
Oct 22, 2017, 11:12:49 AM10/22/17
to
On 10/21/2017 10:02 PM, Alan wrote:
> On 10/21/17 1:50 PM, Roger Fitzsimmons wrote:
>> I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
>>
>> I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
>>
>> Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
>>
> I'm about 90% positive that work performed by a prison inmate is not
> considered employment by IRC Section 3121. As such, it would not be
> taxable compensation for purposes of making an IRA contribution.
>
All I have seen is that it is taxable income (though it might not rise
> On 10/21/17 1:50 PM, Roger Fitzsimmons wrote:
>> I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
>>
>> I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
>>
>> Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
>>
> I'm about 90% positive that work performed by a prison inmate is not
> considered employment by IRC Section 3121. As such, it would not be
> taxable compensation for purposes of making an IRA contribution.
>
above the threshold for filing),but NOT considered earned income re the
EITC: "Amounts received for work performed while an inmate in a penal
institution aren't earned income when figuring the earned income credit.
This includes amounts for work performed while in a work release program
or while in a halfway house."
dpb
Oct 22, 2017, 1:17:56 PM10/22/17
to
On 22-Oct-17 12:02 AM, Alan wrote:
...
> I'm about 90% positive that work performed by a prison inmate is not
> considered employment by IRC Section 3121. As such, it would not be
> taxable compensation for purposes of making an IRA contribution.
P 3121
(a) Wages For purposes of this chapter, the term “wages” means all
remuneration for employment, including the cash value of all
remuneration (including benefits) paid in any medium other than cash;
except that such term shall not include—
...
(6) service performed in the employ of the United States or any
instrumentality of the United States if such service is performed—
(A) in a penal institution of the United States by an inmate thereof;
...
<https://www.law.cornell.edu/uscode/text/26/3121>
(Do text search for "penal" to find specific section)
Seems pretty conclusive isn't earned wages for the purpose, indeed...
--
...
> I'm about 90% positive that work performed by a prison inmate is not
> considered employment by IRC Section 3121. As such, it would not be
> taxable compensation for purposes of making an IRA contribution.
(a) Wages For purposes of this chapter, the term “wages” means all
remuneration for employment, including the cash value of all
remuneration (including benefits) paid in any medium other than cash;
except that such term shall not include—
...
(6) service performed in the employ of the United States or any
instrumentality of the United States if such service is performed—
(A) in a penal institution of the United States by an inmate thereof;
...
<https://www.law.cornell.edu/uscode/text/26/3121>
(Do text search for "penal" to find specific section)
Seems pretty conclusive isn't earned wages for the purpose, indeed...
--
Taxed and Spent
Oct 22, 2017, 3:13:03 PM10/22/17
to
On 10/22/2017 10:16 AM, dpb wrote:
> On 22-Oct-17 12:02 AM, Alan wrote:
> ...
>
>> I'm about 90% positive that work performed by a prison inmate is not
>> considered employment by IRC Section 3121. As such, it would not be
>> taxable compensation for purposes of making an IRA contribution.
>
> P 3121
> (a) Wages For purposes of this chapter, the term “wages” means all
> remuneration for employment, including the cash value of all
> remuneration (including benefits) paid in any medium other than cash;
> except that such term shall not include—
> ...
> (6) service performed in the employ of the United States or any
> instrumentality of the United States if such service is performed—
> (A) in a penal institution of the United States by an inmate thereof;
> ...
>
> <https://www.law.cornell.edu/uscode/text/26/3121>
>
> (Do text search for "penal" to find specific section)
>
> Seems pretty conclusive isn't earned wages for the purpose, indeed...
>
> --
>
26 U.S. Code Chapter 21 - FEDERAL INSURANCE CONTRIBUTIONS ACT
> On 22-Oct-17 12:02 AM, Alan wrote:
> ...
>
>> I'm about 90% positive that work performed by a prison inmate is not
>> considered employment by IRC Section 3121. As such, it would not be
>> taxable compensation for purposes of making an IRA contribution.
>
> P 3121
> (a) Wages For purposes of this chapter, the term “wages” means all
> remuneration for employment, including the cash value of all
> remuneration (including benefits) paid in any medium other than cash;
> except that such term shall not include—
> ...
> (6) service performed in the employ of the United States or any
> instrumentality of the United States if such service is performed—
> (A) in a penal institution of the United States by an inmate thereof;
> ...
>
> <https://www.law.cornell.edu/uscode/text/26/3121>
>
> (Do text search for "penal" to find specific section)
>
> Seems pretty conclusive isn't earned wages for the purpose, indeed...
>
> --
>
So, it is not earned income for FICA. How does that relate to ROTH IRA
contributions? I don't think it does, because it IS income subject to
income taxation.
Roger Fitzsimmons
Oct 22, 2017, 7:53:21 PM10/22/17
to
On Saturday, October 21, 2017 at 4:51:34 PM UTC-4, Roger Fitzsimmons wrote:
> I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
>
> I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
>
> Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
I'm sure the point about prison wages being taxable is more than academic. It would be pretty much impossible for an inmate to earn enough to have to even file, but many are married with spouses who have to file. I guess I could ask my friend if she gets a W-2. I don't think there is a de minimus exception from providing a W-2.
> I have a friend who is in her early 20's and incarcerated for probably another 2-3 years. Despite making a horribly bad choice a few years ago, I think she's basically intelligent, responsible, and has a good set of values. I'd like to introduce her to the idea of investing, saving, and patiently accumulating assets for the future.
>
> I'd like to (with her permission of course) open a Roth IRA for her, and contribute to it the amount she earns at her prison job. I don't know exactly how much it is, but probably $250-$500 a year. I do know of a custodian who will permit me to create an account with a modest amount of money. Obviously, she doesn't currently file a tax return; I have no idea if she gets a W-2 or not.
>
> Can anyone see a problem with this? There's no need to caution me about the wisdom of giving her money in this way; if it turns out I've given money to someone whose character isn't as good as I think, oh well. It won't be the first time I've lost a little money trusting in someone.
But it occurred to me that I can do this regardless. Let's say I put in $300 a year for 3 years until she's released. She won't have tax liability for the dividends. When she gets a job she can sell it and pay the capital gains tax, if any, then open a Roth and put the money in. It's not like she's going to be maxing out her retirement contributions the first year she's working.
It did occur to me that a great, legal tax dodge would be to marry an inmate, especially one in a state with no income tax. But there are downsides to that too!
Bob Sandler
Oct 22, 2017, 9:43:33 PM10/22/17
to
On Sun, 22 Oct 2017 13:16:34 EDT, dpb <no...@non.net> wrote:
>On 22-Oct-17 12:02 AM, Alan wrote:
>...
>
>> I'm about 90% positive that work performed by a prison inmate is not
>> considered employment by IRC Section 3121. As such, it would not be
>> taxable compensation for purposes of making an IRA contribution.
>
>P 3121
>(a) Wages For purposes of this chapter, the term “wages” means all
>remuneration for employment, including the cash value of all
>remuneration (including benefits) paid in any medium other than cash;
>except that such term shall not include—
>...
>(6) service performed in the employ of the United States or any
>instrumentality of the United States if such service is performed—
>(A) in a penal institution of the United States by an inmate thereof;
> ...
>
><https://www.law.cornell.edu/uscode/text/26/3121>
>
>(Do text search for "penal" to find specific section)
>
>Seems pretty conclusive isn't earned wages for the purpose, indeed...
>
Does "a penal institution of the United States" mean only a
>On 22-Oct-17 12:02 AM, Alan wrote:
>...
>
>> I'm about 90% positive that work performed by a prison inmate is not
>> considered employment by IRC Section 3121. As such, it would not be
>> taxable compensation for purposes of making an IRA contribution.
>
>P 3121
>(a) Wages For purposes of this chapter, the term “wages” means all
>remuneration for employment, including the cash value of all
>remuneration (including benefits) paid in any medium other than cash;
>except that such term shall not include—
>...
>(6) service performed in the employ of the United States or any
>instrumentality of the United States if such service is performed—
>(A) in a penal institution of the United States by an inmate thereof;
> ...
>
><https://www.law.cornell.edu/uscode/text/26/3121>
>
>(Do text search for "penal" to find specific section)
>
>Seems pretty conclusive isn't earned wages for the purpose, indeed...
>
federal prison? Is the rule different for someone in a state
prison?
Bob Sandler
John Levine
Oct 22, 2017, 11:18:39 PM10/22/17
to
In article <70iquc53f8a1jvuh5...@4ax.com>,
prisons.
There is a whole lot of very specific langauge about D.C., Guam, and
American Samoa but as I read it (quite possibly wrong) if she were in
prison in Puerto Rico or the USVI her prison income would not be
excluded.
R's,
John
Bob Sandler <bob_u...@yahoo.com> wrote:
>><https://www.law.cornell.edu/uscode/text/26/3121>
>>(Do text search for "penal" to find specific section)
>>Seems pretty conclusive isn't earned wages for the purpose, indeed...
>>
>Does "a penal institution of the United States" mean only a
>federal prison? Is the rule different for someone in a state
>prison?
The next subsection has similar language excluding inmate pay in state
>><https://www.law.cornell.edu/uscode/text/26/3121>
>>(Do text search for "penal" to find specific section)
>>Seems pretty conclusive isn't earned wages for the purpose, indeed...
>>
>Does "a penal institution of the United States" mean only a
>federal prison? Is the rule different for someone in a state
>prison?
prisons.
There is a whole lot of very specific langauge about D.C., Guam, and
American Samoa but as I read it (quite possibly wrong) if she were in
prison in Puerto Rico or the USVI her prison income would not be
excluded.
R's,
John
Stuart O. Bronstein
Oct 23, 2017, 4:44:50 PM10/23/17
to
"D. Stussy" <sp...@spam.org> wrote:
> You're confusing your purposes. Note that it says "[f]or purposes
> of this CHAPTER," (emphasis added). That means it's not wages for
> the purposes of the FICA taxes, but says NOTHING about income tax.
> The social security and Medicare taxes are in a different IRC
> chapter than the income tax.
>
> As long as it's taxable for income tax purposes and is "earned
> income," it counts for IRA purposes..... (and it is earned
> income).
That was my take, too.
--
Stu
http://DownToEarthLawyer.com
> You're confusing your purposes. Note that it says "[f]or purposes
> of this CHAPTER," (emphasis added). That means it's not wages for
> the purposes of the FICA taxes, but says NOTHING about income tax.
> The social security and Medicare taxes are in a different IRC
> chapter than the income tax.
>
> As long as it's taxable for income tax purposes and is "earned
> income," it counts for IRA purposes..... (and it is earned
> income).
That was my take, too.
--
Stu
http://DownToEarthLawyer.com
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