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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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).
-
Stock Market Today: Stocks Rally Despite Rising Geopolitical TensionThe main indexes were mixed on Tuesday but closed well off their lows after an early flight to safety.
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
-
Two Consequential Tax Cases You May Not Have Heard AboutThe Supreme Court's decisions in these cases create uncertainty about challenging IRS regulations and guidance. Expect more litigation to follow.
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
You May Have to Put Catch-Up Contributions in a Roth 401(k): That's Not a Bad IdeaRoth 401(k) High earners will be required to put their catch-up contributions in a Roth 401(k).
-
Don't Overlook Tax on Crypto Staking Rewards: Kiplinger Tax LetterTax Letter The IRS has issued guidance on crypto staking rewards, but broker reporting on digital asset sales won't start until 2025.
-
Bond Basics: Zero-Coupon Bondsinvesting These investments are attractive only to a select few. Find out if they're right for you.
-
The 10-Year Rule for Inherited IRAsKiplinger Tax Letter The IRS’ interpretation of the 10-year clean-out rule on inherited IRAs can be complicated.
-
529 Plans Get a Boost With Tax-Free Rollovers to Roth IRAsThanks to the SECURE 2.0 Act, you're now able to roll over funds from your 529 into a Roth IRA, as long as certain conditions are met.
-
The 1031 Exchange Rules You Need to KnowTaxes are an inevitable part of real estate investing. You can, however, defer or avoid paying capital gains taxes by following some simple 1031 exchange rules.
