Question

Grant (17) is a dependent of his parents. He had wages of $3,325 and earned $240 in interest from his savings account. The maximum amount he may contribute to a traditional or Roth IRA for 2022 is

a. $0
b. $3,325
c. $3,565
d. $6,000

Answer 1

The correct answer is b. $3,325.

Step-by-step explanation:

The maximum amount Grant can contribute to a traditional or Roth IRA for the year 2022 is determined by his earned income. Since he earned wages totaling $3,325 and interest income of $240, it's important to note that only earned income (like wages) can be used to contribute to an IRA. Investment income such as interest is not considered when calculating IRA contribution limits.

Thus, the maximum amount he can contribute to an IRA is the amount of his earned income, which is $3,325. This falls under the annual contribution limit for an IRA in 2022, which is $6,000 (or $7,000 for those age 50 and over). As Grant's earned income was less than this limit, his contribution cap is effectively his earned income.