If someone earns enough money where they can contribute to both their IRA and their spouse’s IRA (non-working spouse), can they still contribute to both of these even if they sell a property and earn a lump sum from that?
I understand if you were retired or both unemployed that you couldn’t make a lump sum of money from capital gains and then contribute to both IRAs as this isn’t earned income, but what if one is already earning “enough” per eligibility requirements? Are they still able to max out both of the IRAs but the question just becomes about whether or not it is deductible vs non-deductible?
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Hi @Elizabeth_Schamberge - good question!
As we discuss in the Types of income chapter, earned income includes:
- Wages
- Salaries
- Tips
- Bonuses
- Commissions
If a person’s only form of income is from a sale of property, they are ineligible to make any retirement plan contributions as they have no earned income.
I understand if you were retired or both unemployed that you couldn’t make a lump sum of money from capital gains and then contribute to both IRAs as this isn’t earned income, but what if one is already earning “enough” per eligibility requirements?
I’m not sure what you mean at the end of the sentence above, but I’d keep it simple. If a person is retired or unemployed, they will likely be ineligible to contribute to a retirement plan. There are some random exceptions that are generally untested. For example, some tax refunds or credits are considered earned income for individuals qualifying for the Earned Income Tax Credit. Regardless, the exceptions are not important to know.
If an unemployed person really wanted to contribute to a retirement plan without being employed, they could do some independent contracting (e.g., driving for Uber or Lyft, mowing neighbors’ lawns). This gets us back to square one though, as income from independent contracting is considered a form of a wage.
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Thank you for the quick response! The specific scenario in mind is if a married couple has one income earner and they liquidate a property, because one spouse earns income they would still be eligible to contribute into both their own IRA as well as a spousal IRA because there is income being earned.
Making capital gains shouldn’t impact their ability to deposit to both IRA and spousal IRA because one is still technically earning enough income through their employment to cover these contributions, right?
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The specific scenario in mind is if a married couple has one income earner and they liquidate a property, because one spouse earns income they would still be eligible to contribute into both their own IRA as well as a spousal IRA because there is income being earned.
As long as earned income is coming from somewhere, contributions to an individual’s IRA and/or their spouse is permitted. Using 2023 contribution limits, a full contribution could be made to both spouse’s IRA if the “breadwinner” made at least $13,000 in earned income (or $15,000 if above age 50). It doesn’t matter where the “extra” income comes from beyond that.
Making capital gains shouldn’t impact their ability to deposit to both IRA and spousal IRA because one is still technically earning enough income through their employment to cover these contributions, right?
Capital gains have zero impact on contribution eligibility to IRAs. It’s all about earned income!
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This is very helpful - thank you so much!
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