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.
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.
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).
How to Buy Stocks
Not everyone knows how to buy stocks, even as investing in the stock market becomes more and more popular. This four-step plan can help.
By Will Ashworth Published
One Key Rule for Understanding 2023 RMDs
RMDs Required minimum distribution (RMD) rules can be confusing, but there is a guideline that can help.
By Kelley R. Taylor Published
Bond Basics: Zero-Coupon Bonds
investing These investments are attractive only to a select few. Find out if they're right for you.
By Donna LeValley Published
Was Your First RMD Due April 1?
What to know about an important required minimum distribution (RMD) deadline for some retirees.
By Kelley R. Taylor Published
529 Plans Get a Boost With Tax-Free Rollovers to Roth IRAs
You’ll soon be able to roll over funds from your 529 plan into a Roth IRA, thanks to recent legislation.
By Erin Bendig Published
The 1031 Exchange Rules You Need to Know
Taxes are an inevitable part of investing in real estate. You can, however, defer or avoid paying capital gains taxes by following some simple rules of a 1031 exchange. Yes, you read that correctly!
By Daniel Goodwin Published
Are Capital Gains Taxes Keeping You From Selling Property?
A structured installment sale could help defer or reduce long-term capital gains when you sell real estate.
By Lars Larsen, Investment Adviser Representative Published
Inflation and Taxes: A Married Couple's Taxes Stay the Same?
The IRS’ inflation adjustments for 2023 would help a married couple pay the same effective tax rate as in 2022 even though their income increased.
By David Weinstock, CFP®, AEP®, CPA Published
The Downside of Delaying RMDs
Thanks to the SECURE 2.0 Act, the age for required minimum distributions is going up. However, don't automatically assume you'll benefit from this change.
By Jackie Stewart Published
An RMD Deadline is Approaching Quickly – And Missing It Could Cost You Big Bucks
If you're age 72 or older, take your required minimum distribution now to avoid a big penalty or a double-dip next year.
By Rocky Mengle Published