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Can even a Non-Deductible Traditional IRA Contribution be made without any tax penalty with ONLY Unearned Income?

Level 3

Pro Series Professional Traditional IRA Contribution with ONLY Unearned Income

Feb. 23, 2021

  • Can even a Non-Deductible Traditional IRA Contribution be made without any tax penalty with ONLY Unearned Income?

 

The Taxpayer has only incomes such as pension, bank interest and dividends.

Pension $7500, Interest $5,000, Dividends $15,000

  • Can he make a Deductible Contribution to Traditional IRA without any tax penalty?

 

  • Can he make a Non-Deductible Contribution to Traditional IRA without any tax penalty?

 

Any thoughts / clarifications / updates would be highly appreciated.

Thanks and Regards.

Raj1

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1 Solution

Accepted Solutions
Level 15

Always use the current and applicable IRS resources when you are learning these things:

"Contributions

To contribute to a traditional IRA, you, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment."

"Compensation for purposes of contributing to an IRA doesn't include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation. In certain cases, other amounts may be treated as compensation for purposes of contributing to an IRA, including certain alimony and separate maintenance payments received, certain amounts received to aid in the pursuit of graduate and postdoctoral studies, and certain difficulty of care payments received."

https://www.irs.gov/taxtopics/tc451

https://www.irs.gov/forms-pubs/about-publication-590-a

 

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5 Replies 5
Level 11

No.  Earned income is required.  It can be spousal earned income if that applies.

Level 15

Always use the current and applicable IRS resources when you are learning these things:

"Contributions

To contribute to a traditional IRA, you, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment."

"Compensation for purposes of contributing to an IRA doesn't include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation. In certain cases, other amounts may be treated as compensation for purposes of contributing to an IRA, including certain alimony and separate maintenance payments received, certain amounts received to aid in the pursuit of graduate and postdoctoral studies, and certain difficulty of care payments received."

https://www.irs.gov/taxtopics/tc451

https://www.irs.gov/forms-pubs/about-publication-590-a

 

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"Level Up" is a gaming function, not a real life function.

View solution in original post

Level 3

Sorry for delay to reply on my part. 

 

Just to reconfirm, even NON DEDUCTIBLE Traditional IRA contr requires Earned Income. Is that so?

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Level 15

Yes.


ex-AllStar
Level 15

IRA is not Savings. It's part of Retirement planning. If you don't work for money, you don't participate in a retirement plan from working. A working spouse can do some contributing for a nonworking spouse.

You need to read the provisions.

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