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kenkopro
New Member

We are both 65+ & jointly own property rented @ $15,600/year...the only "earned income" we receive. Can we each contribute $6,500 to a Roth IRA?

 
1 Best answer

Accepted Solutions
macuser_22
Level 15

We are both 65+ & jointly own property rented @ $15,600/year...the only "earned income" we receive. Can we each contribute $6,500 to a Roth IRA?

Actually the IRS calls it "compensation" that is necessary to contribute to an IRA.   They do not use the term "earned income" because only certain types of earned income meets the requirements.

See IRS pub 590A for the definition of "compensation".

https://www.irs.gov/publications/p590a#en_US_2017_publink1000230355


[Quote]
" What Is Compensation?

Generally, compensation is what you earn from working. For a summary of what compensation does and doesn’t include, see Table 1-1. Compensation includes all of the items discussed next (even if you have more than one type).

Wages, salaries, etc.

Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.

Commissions.

An amount you receive that is a percentage of profits or sales price is compensation.

Self-employment income.

If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:

  • The deduction for contributions made on your behalf to retirement plans, and

  • The deduction allowed for the deductible part of your self-employment taxes."

"

What Isn’t Compensation?

Compensation doesn’t include any of the following items.

  • Earnings and profits from property, such as rental income, interest income, and dividend income.

  • Pension or annuity income.

  • Deferred compensation received (compensation payments postponed from a past year).

  • Income from a partnership for which you don’t provide services that are a material income-producing factor.

  • Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b.

  • Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.

"

[end quote]



**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

View solution in original post

4 Replies
xmasbaby0
Level 15

We are both 65+ & jointly own property rented @ $15,600/year...the only "earned income" we receive. Can we each contribute $6,500 to a Roth IRA?

No.   Income from rent is not earned income from working and cannot be counted as such to contribute to your Roth.  Rent is "passive" income.
**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
VolvoGirl
Level 15

We are both 65+ & jointly own property rented @ $15,600/year...the only "earned income" we receive. Can we each contribute $6,500 to a Roth IRA?

You need earned income from W2 wages or a Net Profit on Schedule C for self employment income.
Carl
Level 15

We are both 65+ & jointly own property rented @ $15,600/year...the only "earned income" we receive. Can we each contribute $6,500 to a Roth IRA?

Rental income is not earned income. That's because you do go out on a recurring basis and actually "do" something to earn it. All you do is "sit there" and collect rent every rental payment period. Therefore you can't include rental income when figuring your allowable retirement contributions. Because rental income is passive, you also do not pay social security or Medicare tax on that income. So it doesn't count for your social security entitlement either.
macuser_22
Level 15

We are both 65+ & jointly own property rented @ $15,600/year...the only "earned income" we receive. Can we each contribute $6,500 to a Roth IRA?

Actually the IRS calls it "compensation" that is necessary to contribute to an IRA.   They do not use the term "earned income" because only certain types of earned income meets the requirements.

See IRS pub 590A for the definition of "compensation".

https://www.irs.gov/publications/p590a#en_US_2017_publink1000230355


[Quote]
" What Is Compensation?

Generally, compensation is what you earn from working. For a summary of what compensation does and doesn’t include, see Table 1-1. Compensation includes all of the items discussed next (even if you have more than one type).

Wages, salaries, etc.

Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.

Commissions.

An amount you receive that is a percentage of profits or sales price is compensation.

Self-employment income.

If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:

  • The deduction for contributions made on your behalf to retirement plans, and

  • The deduction allowed for the deductible part of your self-employment taxes."

"

What Isn’t Compensation?

Compensation doesn’t include any of the following items.

  • Earnings and profits from property, such as rental income, interest income, and dividend income.

  • Pension or annuity income.

  • Deferred compensation received (compensation payments postponed from a past year).

  • Income from a partnership for which you don’t provide services that are a material income-producing factor.

  • Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b.

  • Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.

"

[end quote]



**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

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