Saturday, March 05, 2011

IRA contributions

All over the web it tells what the top limit is for the IRA
Curious retired minds want to know the bottom level.
Is it:
1. the amount the IRA is for
(you have to make $5000 to put in $5000)?
2. the amount both spousal and individual
(you make $5000 but you can put in $5000 individual and $5000 spousal)?
3. the amount is shifting?

There is an understanding that only earned income counts...
thinking that my sister and I should hire each other once a year.

How much does one have to work to place an IRA into play?
Retired inquiring minds want to know.


RAnn said...

Per the IRS
General Limit

For 2010, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts:

$5,000 ($6,000 if you are age 50 or older), or

Your taxable compensation (defined earlier) for the year.

Janette said...


I thought that was the case:>)

RAnn said...

I don't think hiring your sister and having her hire you makes sense. Let's say your pension/investment income is $50,000 and to make the math easy, let's say your tax rate is 5%. That means you owe $2500 in taxes.

Now, let's say you hire your sister for $5000 to paint your house. You don't reduce your taxes by doing that, it just means you have only $45000 in your pocket. Now, she hires you to plant a garden and pays you $5000. That $5000 is taxable, so now you owe an extra $250 in taxes--but if you put in in an IRA, then you don't have to pay the $250 in taxes. Total money in your pocket when it is all said and done: the same as before this exercise.