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How to fund IRA after ET?
Old 10-07-2007, 03:42 PM   #1
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How to fund IRA after ET?

Hi all,

I just found out that I can make contributions to my IRA for this year, because I had earned income. But for next year, when the wife and I won't be working, we would still like contribute to some sort of tax deferred account like an IRA, Roth IRA or whatever.

If we have no earned income, is there any sort of account which can provide this?

If there isn't, and we do indeed need "earned income" to contribute, do you have any suggestions as to how to create earned income without actually getting a job? I'm not looking to be fraudulent, just creative if necessary. For example, can my wife pay me to give her tennis lessons? Can I be paid to be her "consultant" because I do most of the research and decision making for accounts which are only in her name?

How do you early retirees handle this? Or do you just not worry about it and simply invest everything in non IRA type accounts? I know it's a newbie question, but I'd rather not pay my accountant for the answer.

Thanks,

Eddie
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Old 10-07-2007, 04:17 PM   #2
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Nope, you are SOL.

You have to have earned income and odds are that you can't hire each other to do stuff for each other, it doesn't pass the smell test. Besides, you don't want to have to worry about self employment tax or income tax.

Most of our assets are in after-tax accounts. It isn't that big of a deal if you invest in a relatively tax efficient manner.
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Old 10-07-2007, 04:18 PM   #3
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Quote:
Originally Posted by EddieG View Post
Hi all,

I just found out that I can make contributions to my IRA for this year, because I had earned income. But for next year, when the wife and I won't be working, we would still like contribute to some sort of tax deferred account like an IRA, Roth IRA or whatever.

If we have no earned income, is there any sort of account which can provide this?

If there isn't, and we do indeed need "earned income" to contribute, do you have any suggestions as to how to create earned income without actually getting a job? I'm not looking to be fraudulent, just creative if necessary. For example, can my wife pay me to give her tennis lessons? Can I be paid to be her "consultant" because I do most of the research and decision making for accounts which are only in her name?

How do you early retirees handle this? Or do you just not worry about it and simply invest everything in non IRA type accounts? I know it's a newbie question, but I'd rather not pay my accountant for the answer.

Thanks,

Eddie
I don't think you could have your wife pay you to give her tennis lessons, and then put that money in an IRA, without it seeming like fraud to the IRS.

Why not take some part time work just for as long as it would take to earn that much income? Beyond that, I don't know of anything you could do to create earned income.

After I retire, I plan to just invest any extra $$ in non-IRA, taxable accounts.
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Old 10-07-2007, 06:02 PM   #4
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I have found that since retiring I have tended to withdraw funds (72t) rather than
continuing to add them, and I think most on this board do also.

Do you just have most of your $$$ in taxable accounts now and want to shelter
the growth for awhile ?
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Old 10-07-2007, 06:53 PM   #5
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Quote:
Originally Posted by CyclingInvestor View Post
I have found that since retiring I have tended to withdraw funds (72t) rather than
continuing to add them, and I think most on this board do also.

Do you just have most of your $$$ in taxable accounts now and want to shelter
the growth for awhile ?
Some in an IRA which was rolled over from a 401k. I think that will be switched to a Roth, but I'm not sure yet. My wife is rolling her 401k into an IRA now, maybe a Roth. The balance is in taxable accounts, but not all taxable holdings. Some bonds, etc. We're going to make whatever contributions and catch up contributions we can for this year. It's next year and beyond I'm trying to plan for.

Eddie
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Old 10-08-2007, 12:06 AM   #6
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Originally Posted by EddieG View Post
It's next year and beyond I'm trying to plan for.
If it doesn't come from a W-2 or a 1099-MISC then it's probably going to be difficult to put it into an IRA.

If you did it via self-employment then you'd have to pay the full FICA (~15%) instead of half. You'd also have to declare the income and pay taxes on that as well, at federal/state/local levels. You'd possibly be on the hook for creating/registering some sort of business and paying associated fees & taxes on its revenue, too. It all depends on how it's set up.

If you put what's left after all these taxes & expenses into an IRA spreadsheet and compared its tax-deferred growth to the compounding of the original amount in a low-expense tax-efficient taxable account, I bet you'd be way ahead on the taxable account. It'd certainly be a lot less effort.

Besides the red tape and the compounding math working against you, you'd have friendly agents/auditors at all levels just dying to ask you for more information. Sounds a lot like a full-time job, only with no customers.

I don't think an IRA contribution is worth going back to work...
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