ROTH IRA question

[cronewitch]

I am retiring Jan 15 so my only paycheck for the year 2014. I will get 740 hours of vacation and half a month of pay so around 25K gross. I plan to have them withhold SS, Medicare, 25% FIT and the rest will go to ROTH 401K so my net will be zero.

Assuming I am over 50 I need to fund my ROTH IRA with 6.5K but need earned income of 6.5K.

Will my earned income be the Gross or the gross minus the ROTH 401K?

The way I am thinking the W2 will have all the income as taxable income SS income and Medicare income but have the ROTH 401K in Box 12 coded AA.

I don't plan to work ever again. I plan to ROLL my 401K to a IRA and my 401K ROTH to a IRA ROTH. Can I then convert any of the IRA to ROTH when I don't have earned income after this year and not much this year.

[mwcpa]

your earned income will be the amount reported as wages... the Roth 401(k) does not impact taxable wages, so, in your example, the earned income will be 25,000.

You do not "need" to fund the Roth for the full amount, you can fund it for the full amount.... for 2014 the full funding of the Roth IRA is 6,500.

Remember, converting IRA to Roth IRA creates taxable income., so timing can be crucial. 

[taxref]

My original answer vanished into cyberspace, but MWCPA has already responded correctly.

I would only add that, yes, you can do a Roth to traditional conversion in years in which you have no earnings.  You will not, however, be able to add any new funds to your qualified plans.