Q .: I read that you need $ 6,000 of income to make a contribution to the IRA. Is that per person? My wife did not work in 2020. —Mark in San Diego A .: Mark, each person is limited to a maximum contribution of 100% of earned income or $ 6,000 ($ 7,000 if age 50 or older). The contribution can go to an IRA, a Roth IRA, or a combination of the two, as long as the total contributed does not exceed the limit.
Read: $ 100,000 in Retirement Savings for Low-Wage Workers? Possible The contribution limit is separate from any other retirement plan that you or your spouse may be covered by a 401 (k). Those other retirement plans affect your ability to deduct your contribution for tax purposes, but they do not affect your ability to contribute. Anyone with sufficient income from work can contribute to an IRA. It may not be a deductible contribution, but a contribution can be made. For married couples, this means that up to $ 6,000 (or $ 7,000 depending on age) can be contributed for each spouse for a maximum total of $ 12,000 to $ 14,000. Earned income does not have to be earned by any particular member of the couple if you file a joint return. If either spouse earns the required $ 12,000- $ 14,000, or the combined earned income of both spouses is $ 12,000- $ 14,000, both spouses can make their contribution of $ 6,000 ($ 7,000). Read: There is already a solution to the retirement crisis, at least on paper For the purposes of eligibility for IRA / Roth IRA contributions, traditionally earned income comes from work, so it includes wages, salaries, tips, bonuses , commissions and positive net income from oneself. -job. It also includes the taxable alimony received. Less common, but also eligible, are hardship payments for foster care workers and non-tuition-related stipends and scholarship payments. That leaves many other sources of income that DO NOT qualify. For example, items you find on a 1099-INT, 1099-DIV such as interest and dividend income on stocks or other investments do not qualify. Rental income and capital gains from the sale of investments or properties do not count. Neither do pension payments, profit sharing, IRA distributions or distributions from retirement accounts or annuities. Social Security, deferred compensation, unemployment compensation, alimony, disability insurance income, and life insurance income are also excluded. If you contribute more than you can contribute, an “overcontribution” has occurred and will need to be corrected. For a 2020 contribution, no penalty will apply if corrected before April 15, 2021. The penalty for leaving an excess contribution in an IRA or Roth IRA is 6% of the excess for each year the excess remains in the check. That can add up. To correct an excess from previous years, file Form 5329 which will include information on Schedule 2 in your 1040. The exact correction can vary greatly depending on time, amount, age and if you apply the excess to a tax from a later year . . The company that has the account and your advisor should be able to help you eliminate the correct amount. If you have a question for Dan, please email him with “MarketWatch Questions and Answers” in the subject line. Dan Moisand is a financial planner for Moisand Fitzgerald Tamayo. Your comments are for informational purposes only and are not a substitute for personalized advice. Consult your advisor on what is best for you. Some questions are edited for brevity.