Tuesday, January 4, 2011

What if I don't have Earned Income, can I contribute to an IRA?

I received this question from a client of mine and wanted to share it.

Q: I am a retiree and my wife and I have been talking about planning (even more than we already have) for our retirement in retirement. I want to know if I can contribute to a Roth IRA with no "W2" income, but instead with company pension income and taxable Social Security income? What are the rules on this?


A: IRA contributions can be made ONLY if you have earned income. The safe harbor is "W2" income. Pension and Social Security income are NOT considered earned income. If your spouse has enough earned income, a contribution can be made based on her income. Contributions can be made to a Roth IRA regardless of age (as long as you have earned income and income does not exceed certain levels). Contributions to traditional IRAs cannot be made once you reach the year you turn 70 1/2.

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