What counts as earned income for IRA

I am retired, but my wife works.
She has a salary, so she gets a W2.
I only have capital gains, interest and dividends.
What can be counted as IRA income?

Thanks,
Juan@Austin

What can be counted as IRA income?

Earned income includes wages and self-employment reported on schedule C or F or on a K-1 from a partnership.

Interest, dividends, and capital gains are not earned income.

–Peter

I am retired, but my wife works.
She has a salary, so she gets a W2.
I only have capital gains, interest and dividends.
What can be counted as IRA income?

As Peter already pointed out, capital gains, interest and dividend income doesn’t count to make IRA contributions. That said, because your wife does have compensation that does count for IRA contributions, if you file MFJ, you are still eligible to make an IRA contribution based on her income. See IRS Pub 590-A https://www.irs.gov/pub/irs-pdf/p590a.pdf for details on the ‘spousal IRA’.

AJ

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Peter writes: (paraphrasing here) income reported … on a K-1 from a partnership. … can fund an IRA.

“Earnings” from an ETF that causes a K-1, can be used to fund an IRA?

I’m retired with no “earned” income: no wages and self-employment reported on schedule C or F

But a couple years ago, I did get a K-1 due to owning shares in << ProShares Ultra VIX Short-Term Futures ETF >> UVXY.

Specifically, my question is: can the Earnings from that ETF have been used to fund a ROTH IRA?

Are dividends, generated from an ETF eligible for funding a ROTH IRA?

TIA!
:thinking:
ralph

Thanks Peter and AJ,

I forgot to say that She has a 401(k). But I think that only changes the max amounts.

I was wondering if based on her wages we could put $6000 on my IRA AND $6000 on hers or by filing MFJ we only get one contribution.

Thanks,
Juan@Austin

Reading the document you recommended, I found the answer.
“”
… the total combined contributions that
can be made for the year to your IRA and your spouse’s
IRA can be as much as $12,000 ($13,000 if only one of
you is age 50 or older, or $14,000 if both of you are age 50
or older).
“”

But I think that the 401(k) reduces those amounts.

Juan@Austin

No income associated with ETFs can be used to open an IRA.

If your joint total income is under the maximums for funding a ROTH IRA then her income can be used to qualify both of you for ROTH IRA contributions.

Being covered by a 401K decreases the income limit for a deductible Traditional IRA.

If your income is over the limit for funding ROTH IRAs, look at the backdoor ROTH IRA. This works when the person doesn’t have existing Traditional IRAs (TIRA). 401K is irrelevant for a backdoor ROTH. The person makes a non-deductible or partially deductible contribution to a TIRA then immediately converts it to a ROTH IRA.

Other options depend on her 401K. Can she ROTH 401K contributions? Can she make after-tax 401K contributions which then can be converted to a ROTH 401K?

I was wondering if based on her wages we could put $6000 on my IRA AND $6000 on hers or by filing MFJ we only get one contribution.

Providing her income is $12,000 or greater, both of you can make $6,000 up to in IRA contributions.

But I think that the 401(k) reduces those amounts.

No. 401(k)s do not affect the amount that can be contributed. They do affect how much of a Traditional IRA contribution can be deducted. But deductible or not, you are still allowed to make a full contribution if your joint income is sufficient.

AJ

1 Like

Thanks again vkj and AJ.

Specifically, my question is: can the Earnings from that ETF have been used to fund a ROTH IRA?

What was the amount reported as Self Employment Earnings on that K-1? The current year has it in box 14, although it may have been a different box a few years ago. That is the amount you can use to fund an IRA.

In an ETF, I’m fairly sure the amount there was zero.

–Peter

1 Like

Thanks Peter.
That number is indeed 0.

:vulcan_salute:
ralph