If you don't work throughout the year, you might wonder if you're allowed
to make IRA contributions for that year, so for example, if you retire
early in February or April or maybe you don't work at all in
a given year, are you allowed to make those IRA contributions?
You might still want to add to your retirement savings because every dollar
you put away will come in handy later, and plus, you might want
to take advantage of the tax benefits, whether that's making a pre tax
contribution to an IRA or making Roth contributions, so that you can potentially
get tax free income later, well, you might still be allowed to make
those contributions, and we're going to look at this in two ways,
including the so called spousal IRA contribution for those of you who are
married. First, as long as you have eligible earnings, you can generally
contribute to an IRA for the year. And that's probably the case if
you're an employee getting W 2 wages, for example, most people who are
employed get a W 2 at the end of the year,
and you can check your previous years' tax information to see if you
got W 2 wages, but a lot of other types of compensation can
also qualify for those contributions, so you would be allowed to contribute
up to the IRS maximum for the year that gets updated every couple
of years, or the amount of compensation you had, whichever is less.
So what types of income qualify for IRA contributions? The IRS has some
detailed instructions and a handy table here in publication 590, so that
earned income could include commissions and wages, alimony and even other
types of payments, but you can't use interest and dividend income,
among other things, to satisfy the income requirement for those IRA contributions.
For 2022, you can contribute up to 6000 to an IRA,
and that amount rises to 6500 in 2023,
don't forget about the catch up contribution though, when you are age 50
or older during a calendar year, you're allowed to contribute extra for
that year, so this helps you to maximize the amount in your retirement
savings for 2022 and 2023, that catch up contribution amount is an extra
1000, so take advantage if you can, and for workplace retirement plans,
the catch up contribution is even bigger. By the way, I'm Justin Pritchard,
and I help people plan for retirement and invest for the future,
and in the description below, you will find links to some of the
things we've looked at here, as well as some general retirement planning
information. I think you will find all of that helpful, so please check
it out. Another solution here might be to make spousal IRA contributions,
now that's just an informal term, there's not really a spousal contribution,
but it is a way for people who are married and filing jointly
to save additional money for retirement as long as one spouse has enough
eligible income for the year. Note that the income must be sufficient for
both spouses if you're both contributing to IRAS. So if your spouse earned
6000 and contributes 6000 to an IRA, then there would not be any
income left over for a contribution on your behalf, however. If your spouse
earns more than enough to cover the contributions for both of you,
then you can both max out your IRAS.
All of this information applies to different types of IRAS, so whether you're
going to make pre tax deductible contributions to an IRA, you're going to
make Roth contributions, or even if you're going to make non deductible
contributions, as long as you have the income from yourself or a spouse,
then you can make these contributions. Of course, you need to check with
your CPA before you make a decision or do anything, and that way
you can avoid some unpleasant surprises, so I hope you've found this helpful,
if you did, please leave a quick thumbs up... Thank you and take
care.