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Hopefully someone here will know the answer to this question.

My wife and I retired in December of last year (2007) and I don't know if we can legally make 2008 contributions to our IRAs.

She's 64 and I will be in a few months. I think we can both make $6000 contributions for 2008, but I'm not sure.

Does any one know?

TIA
Dave
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Will you have earned income - wages or self-employment - in 2008? If not, you cannot make an IRA contribution.

--Peter
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Hopefully someone here will know the answer to this question.

My wife and I retired in December of last year (2007) and I don't know if we can legally make 2008 contributions to our IRAs.

She's 64 and I will be in a few months. I think we can both make $6000 contributions for 2008, but I'm not sure.

Does any one know?

TIA
Dave



Yes you can, provided you have earned/taxable income.

Here's the official source--
http://www.irs.gov/pub/irs-pdf/p590.pdf

Relevant pages 8/9 and 60 (For Roth IRAs)


Hohum
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Hopefully someone here will know the answer to this question.

My wife and I retired in December of last year (2007) and I don't know if we can legally make 2008 contributions to our IRAs.

She's 64 and I will be in a few months. I think we can both make $6000 contributions for 2008, but I'm not sure./i>

The key word in your post is "for". In order to make an IRA contribution for tax year 2008, you need compensation income in 2008. However, if you mean can you make a contribution in 2008 for tax year 2007, then the asnwer is yes.

Ira
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Yes you can, provided you have earned/taxable income.

Although you are technically correct, I prefer to state the answer the other way around. Particularly since they are asking about a 2008 contribution after stating they retired in 2007.

So I would say that unless you have earned income in 2008, you cannot make an IRA contribution of any type. If it turns out that they DO have earned income, then the rest of the usual tests for IRA eligibility and/or deductibility will come into play.

--Peter
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My wife and I retired in December of last year (2007) and I don't know if we can legally make 2008 contributions to our IRAs.

One possibility has not been mentioned, at least one I can think of. If either of you received a payment treated as wages, for example, unused vacation time, in 2008 it counts as 2008 earned income even though neither of you worked in 2008. In short, any amount reported in Box 1 of a 2008 W-2 can be used as the basis of an IRA contribution for 2008.

Phil
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Although you are technically correct, I prefer to state the answer the other way around. Particularly since they are asking about a 2008 contribution after stating they retired in 2007.

Okay, perhaps I was making an assumption. But, I was thinking OP was familiar enough about IRAs because he mentioned $6k contribution vs $5k contribution, in his post. That indicated he was aware of limits and catch-up contributions, but was concerned whether the "retirement" event posed a restriction.

Besides, that dagnabbit "Retract" button always disappears on me right after a post.



Hohum
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One possibility has not been mentioned, at least one I can think of. If either of you received a payment treated as wages, for example, unused vacation time, in 2008 it counts as 2008 earned income even though neither of you worked in 2008. In short, any amount reported in Box 1 of a 2008 W-2 can be used as the basis of an IRA contribution for 2008.

Does money rolled over from an IRA to a ROTH IRA count as earned income for this purpose?

On that note, does all income (including LTCG on stock sales) count towards the limit on being able to convert an IRA into a ROTH IRA, or is it just certain types of income?

Thanks

Aaron
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4aapl:

<<<<One possibility has not been mentioned, at least one I can think of. If either of you received a payment treated as wages, for example, unused vacation time, in 2008 it counts as 2008 earned income even though neither of you worked in 2008. In short, any amount reported in Box 1 of a 2008 W-2 can be used as the basis of an IRA contribution for 2008.>>>>

"Does money rolled over from an IRA to a ROTH IRA count as earned income for this purpose?"

No. It is not earned income.

"On that note, does all income (including LTCG on stock sales) count towards the limit on being able to convert an IRA into a ROTH IRA, or is it just certain types of income?"

All income? No.

LTCG? Yes.

Conversion limit is based on MAGI, not AGI.

One of the resident pros will likely be along to explain the difference in more detail. I do not have a good definition of MAGI handy.

Regards, JAFO
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Found this in my notes, hope it is still accurate:

Calculate your MAGI by calculating adjusted gross income without taking into account any:

IRA contributions

Taxable social security benefits

Adoption assistance payments

Income from U.S. savings bonds that you used to pay higher education tuition and fees

Interest on qualified student loans

Passive activity loss in real property businesses

The 1/2 of self-employment taxes deduction

The tuition and fees deduction

Any overall loss from a publicly traded partnership

Regards, JAFO
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She's 64 and I will be in a few months. I think we can both make $6000 contributions for 2008, but I'm not sure.

Does any one know?


Dave. If you have 2008 earned income you should be able to contribute to your IRA.

Regards,

ImAGolfer (retired '03)
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Does money rolled over from an IRA to a ROTH IRA count as earned income for this purpose?

On that note, does all income (including LTCG on stock sales) count towards the limit on being able to convert an IRA into a ROTH IRA, or is it just certain types of income?


No and no. Only earned compensation qualifies for IRA contributions.

Ira
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Does money rolled over from an IRA to a ROTH IRA count as earned income for this purpose?

On that note, does all income (including LTCG on stock sales) count towards the limit on being able to convert an IRA into a ROTH IRA, or is it just certain types of income?


No and no. Only earned compensation qualifies for IRA contributions.


I misread the questions. I thought both were about initial contributions to an IRA, but the second question is about conversion.

LTCG do not qualify you to make an IRA contribution, but they do contribute to the MAGI limit which could prevent you from converting a traditional IRA to a Roth.

Ira
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Thanks for the help guys!

No, our "earned" income ended when we sold the business in December of 2007.

My wife has started her Social Security and I've learned that she cannot work for the first year after that. So maybe she'll be able to earn some money and make a 2009 IRA contribution.

As for me, I won't be filing for Social Security until September so if I can earn $6000 by then I guess I'll be eligible for a 2008 contribution.

Trouble is I'll have to make the IRA payment before April 15th so my next question is

Do I have to EARN the $6000 by April 15th?

Or

Can I make the payment before April 15th and then make darn sure I earn at least $6000 before September?

Again, thanks for taking the time to answer my questions.
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desertdaveataol writes (in part):

As for me, I won't be filing for Social Security until September so if I can earn $6000 by then I guess I'll be eligible for a 2008 contribution.

Trouble is I'll have to make the IRA payment before April 15th so my next question is

Do I have to EARN the $6000 by April 15th?


I reply:

You've left out a critical piece of information. Have you made an IRA contribution yet for 2007? If not, then your 2007 earned income enables you to make it now, even though you waited until 2008 to make the contribution. If your IRA contributions are deductible, you will deduct them from your 2007 income, even though they weren't made until 2008.

You need earned income in 2008 in order to support an IRA contribution for 2008, whether that contribution is made in 2008 or 2009 (prior to April 15). However, your earned income can support an IRA contribution for both you and your wife. So if you earn $12,000 in 2008, you and your wife each can contribute $6,000 for 2008.

By the way, I'm not aware that taking social security prohibits one from earning income. The earned income may make the social security income taxable, but I don't know of any adverse consequences. I'm still a couple of decades away from a personal interest in the subject matter, though, so I won't claim familiarity with the details. --Bob
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No, our "earned" income ended when we sold the business in December of 2007.

Trouble is I'll have to make the IRA payment before April 15th so my next question is

Do I have to EARN the $6000 by April 15th?


You have to make a contribution based on your 2007 income by April 15, 2008. If you are making a 2008 IRA contribution, you have until April 15, 2009. So which year are you contemplating making a contribution for?

If you are making a contribution for 2007 by April 15, 2008, you would be eligible, as you have earned income for 2007.

My wife has started her Social Security and I've learned that she cannot work for the first year after that. So maybe she'll be able to earn some money and make a 2009 IRA contribution.

Actually, it's not that she "can't" work - it's if she does work, and she earns more than the cap of $13,650 for 2008, for every $2 above the cap, she will have $1 of her SS benefit taken back. And the time frame isn't "the first year" - it's until she reaches her Full Retirement Age, which varies depending on when she was born. Here is a tiny url that leads to more information on working will affect your SS benefit at www.ssa.gov: http://tinyurl.com/2fb7hr

As for me, I won't be filing for Social Security until September so if I can earn $6000 by then I guess I'll be eligible for a 2008 contribution.

You probably also want to look at www.ssa.gov to figure out when it would be most advantageous to take your SS - there are special rules for earnings the initial year that you start collecting SS and the year that you reach your full retirement age. But if you are planning on working and earning above the limit, you need to consider whether you want to apply for your SS during that year.

AJ
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Actually, it's not that she "can't" work - it's if she does work, and she earns more than the cap of $13,650 for 2008, for every $2 above the cap, she will have $1 of her SS benefit taken back.

If she earns under the cap and enough to do it, does that mean they could each fully fund a Roth for 2008 and there would be no impact on her SS ?

rad
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If she earns under the cap and enough to do it, does that mean they could each fully fund a Roth for 2008 and there would be no impact on her SS ?

Mostly correct - If between the two of them, they earn $12,000 in 2008 (which would be under the cap for either), they could each make a $6,000 contribution for 2008, and there would be no SS benefits taken away. If either one earns money, and it's one of their 35 highest earning years, then their future benefit could actually be increased slightly.

So as long as you stay under the cap, there should be no negative impact, and depending on your earning history, there may be a positive impact.

AJ
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Also, you can earn as much as you want prior to starting your SS payments.

The earnings limit ($13K) applies to (a) once you start collecting and up to (b) your fully vested SS age.

The year I beagn SS, I worked up to June 30th and began collecting my full (reduced for age 62) amount as of July.
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Thanks, Larry, AJ & guys; yes it would be for 2008. We made our 2007 contributions last year.

You need earned income in 2008 in order to support an IRA contribution for 2008, whether that contribution is made in 2008 or 2009 (prior to April 15). However, your earned income can support an IRA contribution for both you and your wife. So if you earn $12,000 in 2008, you and your wife each can contribute $6,000 for 2008.

So, how would I go about using my income for her 2008 IRA? Is there a special form we have to use?
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desertdaveataol writes:

So, how would I go about using my income for her 2008 IRA? Is there a special form we have to use?

I reply:

Just do it. There's no form. --Bob
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So, how would I go about using my income for her 2008 IRA? Is there a special form we have to use?

You just have to file a joint 2008 return. See Pub 590.

Phil
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