Does rental income make one eligible for Roth IRA?

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SC Hoosier
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Does rental income make one eligible for Roth IRA?

Post by SC Hoosier » Tue Jun 24, 2014 1:01 pm

I doubt it does, but I thought I ask my very intelligent friends here at Jack's Place.

My father has farm land rental income. Can he call this self employment income on his farm and contribute to a Roth IRA?

Hoosier
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.

rkhusky
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Re: Does rental income make one eligible for Roth IRA?

Post by rkhusky » Tue Jun 24, 2014 1:07 pm

Found this on the Internet:
Income which an applicant/client receives from rental property which he/she owns shall be considered earned income if the applicant/client is actively engaged in the management of the property. Such activity is to be determined by the applicant's/client's declaration or by viewing a management agreement.
and this:
The basic rule of thumb in cases like these is that net rental income counts as unearned
income (meaning not subject to FICA per POMS Section RS 02505.240) unless it is
earned income from self-employment (e.g., someone who is in the business of renting
properties).

MathWizard
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Re: Does rental income make one eligible for Roth IRA?

Post by MathWizard » Tue Jun 24, 2014 1:14 pm

I like to go to the source:

From http://www.irs.gov/publications/p590/ch ... 1000230355
Table 1-1. Compensation for Purposes of an IRA

.....

What Is Not Compensation?

Compensation does not include any of the following items.

Earnings and profits from property, such as rental income, interest income, and dividend income.
...
The last sentence seems to say it all.

rkhusky
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Re: Does rental income make one eligible for Roth IRA?

Post by rkhusky » Tue Jun 24, 2014 1:17 pm

Seems like your father would need to set up a business that rents out properties. If the business is a corporation, it could pay him a salary. If it is a sole-proprietorship, the net income would be counted as earned income.

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4nursebee
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Re: Does rental income make one eligible for Roth IRA?

Post by 4nursebee » Tue Jun 24, 2014 1:20 pm

The first reply "actively engaged" reads as all kinds of bells and whistles to me with regard to taxation...as I am passively engaged in RE endeavors.
4nursebee

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SC Hoosier
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Re: Does rental income make one eligible for Roth IRA?

Post by SC Hoosier » Tue Jun 24, 2014 1:26 pm

Thank you for the quick answers. I really appreciate your help. So glad to be a member of this community.

Hoosier
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.

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Kevin M
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Re: Does rental income make one eligible for Roth IRA?

Post by Kevin M » Tue Jun 24, 2014 1:26 pm

If he files Schedule E, it is rental income, not earned income. If he files Schedule C, it is a business, and therefore earned income to the extent wages/salary are paid or the business shows a profit. IRA contributions are limited to earned income.

From Pub 590:
Self-employment income. If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:
The deduction for contributions made on your behalf to retirement plans, and

The deduction allowed for the deductible part of your self-employment taxes.

Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs.

Self-employment loss. If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation.
Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

bnes
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Re: Does rental income make one eligible for Roth IRA?

Post by bnes » Tue Jun 24, 2014 1:30 pm

Is he married? What does the DW make if so?

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SC Hoosier
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Re: Does rental income make one eligible for Roth IRA?

Post by SC Hoosier » Tue Jun 24, 2014 1:43 pm

bnes,

This is a question for down the road when neither of them are working. Thank you for the thought.

Hoosier
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.

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