Deductible IRA Contributions for 2021

Forum|Forum|4 years ago
April 7, 2022
2 replies
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I am retired with no Earned Income, my spouse is self employed with a SEP. The TT Home & Business wizard is suggesting that we both can contribute to an IRA and reduce the amount of tax owed by lowering our net taxable income. My understanding is that you must have earned income to contribute to an IRA. Am I allowed to contribute to an IRA because we file as Married Filing Jointly and together we have earned income from her business? This article doesn't fully explain in a way that I can understand. https://turbotax.intuit.com/tax-tips/investments-and-taxes/deductions-allowed-for-contributions-to-a-traditional-ira/L6yMopvkV

Best answer by dmertz

Yes, you are permitted to make a contribution to your own traditional IRA based on your spouse's compensation from self-employment. Your spouse can also make a regular contribution to a traditional IRA. (If your spouse makes one, to avoid confusion it's best that it be made to an IRA different from the SEP-IRA.) Whether or not either of these traditional IRA contributions would be deductible depends on your Modified AGI for the purpose.

The sum of the SEP contribution, the regular traditional IRA contributions and the deductible portion of self-employment taxes is not permitted to exceed your spouse's net profit from self employment (absent any other compensation).