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.

3 comments:

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.

http://www.irs.gov/publications/p590/ch01.html#en_US_2010_publink1000230355

Janette said...

Thanks!

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.