IRA on Rental Income

Today TaxMama hears from Bill in the TaxQuips Forum with a common misconception. “I have a W-2 through my employer and contribute to their 401k plan. I also have $30,000 net rental income from Schedule E as a sole proprietorship. Can I contribute to a SEP or any other type of retirement plan to shelter some of the rental income?”

Hi Bill,

Rita Lewis, an Enrolled Agent in Connecticut tells us that retirement contributions are based on your compensation.  Wages and net self-employment income (Schedule SE) and alimony can be compensation for retirement contribution purposes.

TaxMama adds, if your wage income is low enough to allow you to contribute to an IRA, you can contribute based on your wages.

Or if you find the limits really confusing, do this. Enter your wages into your tax software. Be SURE to check the box, on the W-2 input page, for Retirement Plan. Then, go to the IRA contributions page. Enter the amount you want to contribute. See if it gives you an error message.
buy cipro online no prescription

Incidentally, since you have a retirement plan at work, having other earned income sources wouldn’t make a difference to your contribution limits, when it comes to an IRA. If you had other earned income, you might be able to contribute to a SEP-IRA or solo-401k or a SIMPLE.
buy augmentin online no prescription

But those take some planning.

Unfortunately, rental income is considered passive income. You can’t make retirement contributions on the basis of that income.

In short, if you’re not paying Social Security or Self-Employment taxes on the income, you can’t use it as the basis for retirement contributions.

And remember, you can find answers to all kinds of questions about retirement contributions and other tax issues, free.

Where? Where else? At

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join link – it’s free!]

Please post all Comments and Replies in the – New TaxQuips Forum


  • Ask TaxMama :: Where taxes are fun and answers are free
  • :: The number ONE free tax podcast online
  • IRS Publication 590 :: IRA contributions phaseouts if you are covered by an employer plan
  • TaxQuips Forum :: Where you can comment on this question
  • Comments are closed.