Can I contribute to IRA if I have no earned income?

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AndroAsc
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Can I contribute to IRA if I have no earned income?

Post by AndroAsc »

Starting next year, I will be on a fellowship (it's like an award that pays you a "salary"). It's not going to be counted as salary income, like on a W-2.

My question is, if my W-2 income is zero, is there anyway I can contribute to an IRA or some other retirement account? Non-deductible IRA perhaps?
earlyout
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Re: Can I contribute to IRA if I have no earned income?

Post by earlyout »

If you are married and your spouse has enough earned income and you file a joint tax return, you can both contribute to your IRAs.
jlgrandam
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Re: Can I contribute to IRA if I have no earned income?

Post by jlgrandam »

I'm in the same situation (Fellowship through the NIH) and haven't found any way to contribute money to a tax-advantage account. This has been the case for several years during graduate school and now postdoc. It's one of the many reasons why winning a "prestigious" fellowship turns out to be a financial catastrophe. We also don't get any of the normal employee benefits from the University as we are technically not "employed." What a load of turd.
livesoft
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Re: Can I contribute to IRA if I have no earned income?

Post by livesoft »

I dunno about the turd, but you can still take all that money and invest tax-efficiently in a taxable account.

Years ago the annual max contributions to retirement accounts was so low that even graduate students could max out their options and still have plenty of money to live on. They didn't get wealthy doing that.
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jebmke
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Re: Can I contribute to IRA if I have no earned income?

Post by jebmke »

The term you need is "compensation", not earned income. See page 7-8 of Pub 590. For something to be compensation, generally you have to have worked for it. But it also excludes deferred compensation even though work was involved but there is a good reason for that.
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JW-Retired
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Re: Can I contribute to IRA if I have no earned income?

Post by JW-Retired »

AndroAsc wrote:Starting next year, I will be on a fellowship (it's like an award that pays you a "salary"). It's not going to be counted as salary income, like on a W-2.
My question is, if my W-2 income is zero, is there anyway I can contribute to an IRA or some other retirement account? Non-deductible IRA perhaps?
I don't think so. Also don't think it matters much. Just save what you can in a taxable account and you can probably put it into your IRAs et al later.

You don't give much information for us to go on, so I'll make a guess you are a grad student and will graduate in several years, and then be getting a decent salary after that. If you have taxable savings, then when you start getting any W-2 income at all you will be in a good position to immediately max out contributions to all the tax advantaged plans you have available, using the taxable account to fund living expenses as needed. In this way you in effect transfer your taxable account money to tax-advantaged.

Most new grads don't have a big enough salary to max out everything right away.
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AndroAsc
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Re: Can I contribute to IRA if I have no earned income?

Post by AndroAsc »

jlgrandam wrote:I'm in the same situation (Fellowship through the NIH) and haven't found any way to contribute money to a tax-advantage account. This has been the case for several years during graduate school and now postdoc. It's one of the many reasons why winning a "prestigious" fellowship turns out to be a financial catastrophe. We also don't get any of the normal employee benefits from the University as we are technically not "employed." What a load of turd.
Yep, that's my situation. To add on the rant, it seems that accomplishments in our fields is often rewarded with financial handicap.
Last edited by AndroAsc on Sun Sep 08, 2013 5:16 pm, edited 1 time in total.
Topic Author
AndroAsc
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Re: Can I contribute to IRA if I have no earned income?

Post by AndroAsc »

Thanks for the advice, seems that there is no way out...
sport
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Re: Can I contribute to IRA if I have no earned income?

Post by sport »

AndroAsc wrote:Thanks for the advice, seems that there is no way out...
Unless you marry an employed spouse :)
lindisfarne
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Re: Can I contribute to IRA if I have no earned income?

Post by lindisfarne »

Get a part=time job, earn up to $5,500, & you can contribute the earned amount to an IRA if you don't have a spouse with earned income.

You also do not pay social security (=7% savings) or medicare (=1.5%? savings) taxes on fellowship income, which you might now see as a positive thing, but it also means you do not accrue credit for disability or retirement (you might have enough disability credits from part-time jobs in high school & college). Look at your SS annual statement, attainable from the SS website. If you're a post-doc on a government fellowship, you may qualify to have some of your student loans forgiven.

On the bright side, you should be able to get health insurance through your university - most universities do provide the health insurance benefits to fellows (I believe NIH grants require that). If not, as of Jan 1, 2014, you would qualify for insurance through the health exchanges established by ACA (ObamaCare) & for subsidies if your income is low enough (I'm sure for this purpose, they will factor in what you're earning on the fellowship).

As an added bonus, you get the joy of calculating (and paying) estimated taxes on your fellowship $.
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Watty
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Re: Can I contribute to IRA if I have no earned income?

Post by Watty »

If you already have any money in an IRA you may be able to do Roth conversions and not have to pay any taxes on it up the amount of your normal standard deduction and personal exemption.
thx1138
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Re: Can I contribute to IRA if I have no earned income?

Post by thx1138 »

jlgrandam wrote:I'm in the same situation (Fellowship through the NIH) and haven't found any way to contribute money to a tax-advantage account. This has been the case for several years during graduate school and now postdoc. It's one of the many reasons why winning a "prestigious" fellowship turns out to be a financial catastrophe. We also don't get any of the normal employee benefits from the University as we are technically not "employed." What a load of turd.
I don't know your situation specifically and I wouldn't be surprised if some fellowships are a bad deal, but in most of the cases I've been exposed to either personally or through acquaintances fellowships are a net win. While no IRA income or SS income you often get:

- No need to RA or TA during grad school, means more time to get degree done sooner
- More independence in your research as a postdoc which can go a long way to better publication record and better employment earlier.
- More flexibility in choosing an institution which can also have career path advantages.

Grad school and postdocs have huge opportunity costs associated and anything that gets you out of those situations faster and into a "permanent" job sooner is an advantage. Most of the time it seems fellowships provide that opportunity.

As to the OP I'd echo the sentiments already stated. Sensible investment in taxable for the intervening years is not too big a hit. Also depending on your field and location you may be able to get enough W-2 income for IRA contributions through a side job. Though I'm not sure it is worth it, spending the least amount of time as a student or postdoc is the most advantageous path so don't let side jobs distract you.
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Re: Can I contribute to IRA if I have no earned income?

Post by LadyGeek »

New member mlwong has a similar question, which I've moved into a stand-alone thread: [T32 NIH Post-doc, eligible for SEP IRA?]
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