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Author: etbean Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1481  
Subject: IRA Date: 3/9/2007 6:17 PM
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MY husbaand and I are retired at age 55 three years ago. Pension $28000, CDs 10 000. Can we contribute to our IRA even though we did not work this year?
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Author: dougdoogle Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1046 of 1481
Subject: Re: IRA Date: 3/9/2007 7:10 PM
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MY husband and I are retired at age 55 three years ago. Pension $28000, CDs 10 000. Can we contribute to our IRA even though we did not work this year?

The short answer is no. IRA deposits must be from earned income. Generally, income that you pay social security on and income that you get a W-2 for come tax time.

Doug

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Author: ImAGolfer Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1047 of 1481
Subject: Re: IRA Date: 3/9/2007 9:27 PM
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MY husbaand and I are retired at age 55 three years ago. Pension $28000, CDs 10 000. Can we contribute to our IRA even though we did not work this year?

Without earned income .... no.


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Author: etbean Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1048 of 1481
Subject: Re: IRA Date: 3/10/2007 8:06 AM
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I thought only for Roth IRA one had to have earned income. The regular quallified one -not, or at least we pay taxes on the pension etc.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1049 of 1481
Subject: Re: IRA Date: 3/10/2007 8:21 AM
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I thought only for Roth IRA one had to have earned income. The regular quallified one -not, or at least we pay taxes on the pension etc.

To contribute to any IRA, one must have earned income. Pension and SS income does not count. Here are the rules from IRS Publication 590 ( http://www.irs.gov/pub/irs-pdf/p590.pdf ):

You can set up and make contributions to a traditional IRA if:

You (or, if you file a joint return, your spouse) received taxable compensation during the year, and

You were not age 70½ by the end of the year.

What Is Compensation?

Generally, compensation is what you earn from working. For a summary of what compensation does and does not include, see Table 1-1.

Table 1-1. Compensation for Purposes of an IRA
Includes ...                               Does not include ...  
wages, salaries, etc. earnings and profits from property.
commissions. interest and dividend income.
self-employment income. pension or annuity income.
alimony and separate maintenance. deferred compensation.
income from certain partnerships.
any amounts you exclude from income.


AJ


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Author: Retcoastie Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1071 of 1481
Subject: Re: IRA Date: 7/22/2007 12:50 AM
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You didn't say where you retired from or the plan. Without that info I can only make a suggestion and it is based on: You are entitled to Social Security but not drawing Social Security at this time.

$2000 in an IRA is not going to grow much before you are eligible for SS. Once you begin drawing on that IRA amount it will deminish quickly. Instead of an IRA, start yourself a little company and give yourself a W-2 that would show a wage amount that would increase your taxes by $2000. Now instead of putting the $2000 in an IRA, your are paying additional taxes and depositing the $2000 with the government. The advantages are in figuring your SS payments. They are based on your last three years wages. Increasing your effective wages will make you monthly SS payment larger. The advantage is it lasts as long as you live. The balance does not deminish. Plus, your survior will get an increased SS based on your inflated wages as long as they live. If you and your spouse were planing on each putting in $2000 you would probably be better to inflate your last wages by $4000 worth of taxes and increasing the SS benefit more.

You will have to count your own beans, but SS will be around a lot longer than 4 to 7 years of IRA interest.

Good Luck

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1072 of 1481
Subject: Re: IRA Date: 7/22/2007 6:40 AM
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Welcome!

Your suggestion of starting a business may well help increase SS payments, but you seem to have some misunderstandings:

$2000 in an IRA is not going to grow much before you are eligible for SS.

The contribution limit for IRAs 2007 is $4000. It will be $5000 next year. It hasn't been $2000 since 2001.

The advantages are in figuring your SS payments. They are based on your last three years wages.

SS payments are based on your highest 35 years wages (after indexing), not your last three years. Here is an explantion from the Social Security website: http://tinyurl.com/2uomby (If you want to preview the LONG url, go here: http://preview.tinyurl.com/2uomby )

AJ

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1073 of 1481
Subject: Re: IRA Date: 7/22/2007 8:50 AM
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<<The advantages are in figuring your SS payments. They are based on your last three years wages. Increasing your effective wages will make you monthly SS payment larger. >>




Among other things, Social Security payments are based on a workers highest 35 years of earned income. Not the last three years as you suggest.


http://www.aarp.org/research/socialsecurity/benefits/aresearch-import-354-FS59R.html

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Author: ChurchyLaFemme Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1074 of 1481
Subject: Re: IRA Date: 7/22/2007 1:45 PM
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MY husbaand and I are retired at age 55 three years ago. Pension $28000, CDs 10 000. Can we contribute to our IRA even though we did not work this year?

Other people have answered that question, but I want to comment and ask you a few myself.

Is $28,000/annum enough for you to live on currently? Have you considered the affects of inflation? Is the pension subject to cost of living increases?

Do you have health insurance? In the event of a catastrophic (or even just major) health problem, the lack of insurance could be a killer.

Assuming you're a homeowner, is the property owned free and clear?

Ultimately, I guess the operative question is do you have sufficient resources to live comfortably until you both start collecing SS?

I retired 6 years ago. I have no pension, but my wife has one. We had substantial assets including a relatively fat 401k (converted to a self-managed IRA some time ago), several pieces of real property (owned outright) and a modest sized brokerage account (about $200k). I was laid off, had been at the company for 17 years and received nearly a year's pay as severance, not to mention eligibility for "Bridge to Medicare" health insurance (we had to pay full cost, but at group rates).

Since then, we have lived on my wife's pension, the severance pay, proceeds from the sale of primary residence (wife inherited her parents' house and we moved there) and some of the brokerage account funds (thankfully not diminished due to Apple's spectacular share price growth over the last few years).

In the absence of additional information, I must admit to being somewhat surprised that you and your husband would retire before accumulating additional assets.

Churchy

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Author: Retcoastie Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1075 of 1481
Subject: Re: IRA Date: 7/22/2007 11:13 PM
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Thanks for all the responses that show the error of my thinking on how SS is figured. Actually, I retired from the military 27 yrs ago and have been living off that pretty well most of the time. Those 20 years were the only input I had to SS. I did do a short spell for the state of Ohio and am now eligible to receive a stipend from them. They are the ones who use the last three years average wages to figure your benefit. Old farts get confused.

I haven't had earned wages in years so I am not current on IRA limits.

Still, is the basic concept sound? The last few year's contributions will not earn a lot unless you get really lucky in a self directed account. Would artifically inflating your wages to increase your tax by $4000 or $5000 dollars for two or three years produce a greater lifetime return than would be realized with that money in mutual funds or CDs?

What do you think?

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1076 of 1481
Subject: Re: IRA Date: 7/23/2007 10:15 AM
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Still, is the basic concept sound? The last few year's contributions will not earn a lot unless you get really lucky in a self directed account. Would artifically inflating your wages to increase your tax by $4000 or $5000 dollars for two or three years produce a greater lifetime return than would be realized with that money in mutual funds or CDs?

It depends.

First - the OP is retired. To implement your idea, they need to start a business, which may not be something they are interested in dealing with at this point

Second - the business would have to make enough profit to increase their income to pay $4k - $5k in taxes. With many start-up small businesses, this would be questionable at best, unless they were to ignore deducting of some deductible expenses.

Third - if the income is increased enough to pay $4k - $5k in taxes, it is likely that the income itself is going to bring them more renumeration than any increase in SS would.

Fourth - if the OP already has 35 years in creditable income, they would have to make more in indexed income than any of the previous 35 years in order for any increase in SS to occur.

Fifth - it's pretty much a moot point to compare paying $4k - $5k in income/self-employment taxes to contributing it to an IRA, because with no earned income, the OP is ineligible to contribute to an IRA anyway, as the first several replies to the original post indicated.

Personally, if I had made the decision to retire, I wouldn't want to start up a business solely to increase my SS earnings. I would want to be retired.

AJ

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Author: Retcoastie Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1077 of 1481
Subject: Re: IRA Date: 7/23/2007 3:19 PM
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AJ, good responses, but you miss my point.

The business could be a "scam" and sell grass clippings for that matter. It could have "reported sales" of $50,000.00. The IRS or SS don't care. The wages paid out could be $49,999.00 for a net profit of $1.00, still they don't care. Now the OP has "earned income" of $49,999.00 and that would incure an additional $5,000.00 in income and SS taxes.

In this case where the OP was retired it might be more difficult depending on their previous earnings. But if a person was nearing retirement and knew in three to five years they were going to retire the last several years with hugh "inflated" wages might make a large difference. Larger than what the "extra" tax money would do if put in an IRA.

It might not apply to a person who worked under SS for their entire life but might for someone who started work later in life, a divorcee possibly.

Now what do you think? Workable?

Ken

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1078 of 1481
Subject: Re: IRA Date: 7/23/2007 3:49 PM
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The business could be a "scam" and sell grass clippings for that matter. It could have "reported sales" of $50,000.00. The IRS or SS don't care. The wages paid out could be $49,999.00 for a net profit of $1.00, still they don't care. Now the OP has "earned income" of $49,999.00 and that would incure an additional $5,000.00 in income and SS taxes.

Ummmmmm......the IRS and SSA do care. Unless you have an actual business and can show actual revenues and expenses, it's called fraud.

Of course, spending one's retirement in the pokey could be cheaper from a living expense standpoint, but your net worth would probably take a hit from fines and penalties.

AJ

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