Eligibilty for IRA

[JJ2023]

Hello. I am retired since February 2021.  My employment prior to retirement did offer the option of a 452 or 457 account, in which I participated.  Upon retirement, they were all converted to IRAs.  I did not work again until January 2022, and then as an independent contractor.  My new position does not have the option to join in a 401K or another retirement plan.  Thus, can I contribute to an IRA for 2022, while taking RMDs from an existing IRA/457/452 account?  The 2022 Turbo Tax software says I qualify, but I just want to be sure!!! Also, can you contribute the maximum to the IRA if you earned less than the $7,000--this applies to my spouse but not me, as I earned more than that.

[Opus 17 · Accepted solution]

Your IRA contribution is limited to your compensation from working. If you are self-employed, your compensation is considered to be 92% of your net income (which is your net income minus half your self-employment tax).  Using the spousal, IRA rules, your spouse can rely on your compensation to make a contribution, but your contributions are still limited by your total compensation.  For example, if you have $10,000 in compensation, you could contribute $7000 to an IRA and your spouse could contribute $3000.

Because of reforms in the SECURE act, you are allowed to make new IRA contributions even if you are over age 72, as long as you have compensation from working.

[ErnieS0]

If you’d like to contribute more, as a self-employed person, you can contribute to a Simplified Employee Pension Plan (SEP).

This is a tax-deferred contribution, so you will get a 2022 tax deduction.

You can open a SEP account as late as the due date (including extensions) of your business's income tax return for that year.

Learn more at SEP Plan FAQs

[JJ2023]

Thank you!  One final question. Do I have to open a new  IRA or can I add it to my existing one?

[Opus 17]

@JJ2023 

You may contribute to an existing IRA if you like.

Note, however, that an SEP IRA is a different kind of plan and would require opening a new account.  The SEP IRA is an interesting idea because it has a much higher contribution limit than a traditional IRA, but you can only contribute 25% of your net earnings.  So, whether an SEP IRA makes sense depends on your actual self-employment income.