Advertisement
investing

Does Rental Income Count for IRA Contributions?

Rental income is considered "passive," and traditional and Roth IRA contributions must come from "active" income, or compensation from working.

Question: I'm a retired real estate agent, and I manage rental properties. Does my rental income count as having a job for the purpose of contributing to an IRA?

Answer: No, earnings and profits from property don't count. Contributions to traditional and Roth IRAs must come from “active” income--that is, compensation from working. It can include wages, salaries, tips, professional fees, bonuses and other amounts you receive for providing personal services, as well as commissions and self-employment income. If you work for salary or wages, you'll receive an IRS Form W-2 for qualifying income, or if you're an independent contractor or are self-employed, you'll receive a Form 1099 MISC. Another way to know that your income qualifies is if you pay FICA or self-employment tax on it.

Earnings and profits from property, such as rental income, doesn't count as compensation. Rental income is considered passive income—that is, "money made on money," says Ed Slott, a CPA and IRA expert (www.irahelp.com). Interest and dividends are also forms of passive income.

Advertisement - Article continues below

Slott suggests a couple of workarounds: You could form your own property-management company as a corporation or limited-liability company and become its employee. Then you could have a solo 401(k) (see www.irs.gov/retirement-plans/one-participant-401k-plans). Or, if you file a joint return with your spouse and your spouse has earned income, you could each contribute to your own IRAs --as long as your spouse earns enough income to cover each of your contributions. In that case, you can use your rental income to fund your spousal IRA.

Advertisement
Advertisement - Article continues below

For 2019, your total contributions to your traditional and Roth IRAs can't exceed $6,000 ($7,000 if you're age 50 or older) or your taxable compensation for the year, if your compensation was less than that dollar limit. If you and your spouse are funding a regular and spousal IRA, the combined contributions can't exceed the taxable compensation that you report on your joint return. Note that your Roth IRA contribution might be limited based on your filing status and income (see www.irs.gov/forms-pubs/about-publication-590-a).

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
17 States That Will Gain or Lose Electoral-College Votes After the 2020 Census
Politics

17 States That Will Gain or Lose Electoral-College Votes After the 2020 Census

Every 10 years, the 435 seats in the House of Representatives are reassigned based on the results of the U.S.
July 2, 2020

Recommended

Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020
Hail to Your Finances, Regardless of Who Wins Presidency
retirement planning

Hail to Your Finances, Regardless of Who Wins Presidency

Don’t try to navigate your investment choices based on election uncertainty. And don’t wait to find out who wins in November to make financial decisio…
June 30, 2020
Resources for alternative forms of transportation needed by many older adults
retirement

Resources for alternative forms of transportation needed by many older adults

For many older adults, having an alternative mode of transportation may be the difference between independence and social isolation.
June 29, 2020