The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: vulgar_girl on February 20, 2015, 04:09:36 PM
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I have a friend who has retired and is collecting a pension from a public university in CA. She is still earning income from wages with a side gig. She said that she was unable to contribute to an IRA from her wage earnings because she is drawing a pension? I didn't think that sounded right, so I decided to ask the experts. What do you say?
**EDIT - I went to the interwebs and found the following information if anyone cares to comment. Also, where it says "work" throughout below, I am assuming that would apply to the side gig?:
- If you have no retirement plan at work and you're younger than 70 ½, you can put money in (up to the annual contribution limit) and deduct the entire amount from your taxes. (If your spouse doesn't work outside the home, he or she can also invest up to the federal limit and deduct the full amount, as long as your combined earned income is $89,000 or less.)
- If you do have a 401(k) or other retirement plan at work, your contribution is fully deductible only if your adjusted gross income (AGI) is less than $89,000 for a married couple filing jointly or $56,000 for an individual.
- If you have a workplace retirement plan, the deduction for your traditional IRA contribution is phased out completely if your AGI is $109,000 or more (married couple filing jointly) or $66,000 or more (individual), or $10,000 for a married person filing separately.
- If you're not covered by a workplace plan but your spouse is, your contribution is fully deductible if your combined income is less than $167,000 and gets phased out at $177,000 or more.
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I am not an expert but any type of IRA can be contributed to as long as you have earned income, W2 etc. If she has a side gig and is declaring the income she can still contribute.
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Now I am trying to make sense of the bullet points. Do they apply to her current side gig or to her situation as a whole? For example bullet #2, she did have workplace 403 and 457 plan from which she may or may not be drawing. Is her contribution to a traditional IRA fully deductible only if her total AGI (pension, SS, 403, 457) is less that $56K, or if her AGI from her side gig is less than $56K? So confusing...
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Total annual income, side gig and main gig included.
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So maybe the best bet would be a Roth if her AGI is less that $105,000? Or to just save in taxable investments.
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No, the bullets do not apply to her.
The reason they seem confusing is because the vast majority of people looking up information about contributing to an IRA will still be actively employed "at work", so they don't bother to clarify whether "at work" means "currently working at" or "previously worked at".
Anyway, for hardcore proof straight from the IRS: http://www.irs.gov/publications/p590a/ch01.html#en_US_2014_publink1000230449
"If you receive retirement benefits from a previous employer's plan, you are not covered by that plan."
ETA: so it's bullet #1 that's relevant to her situation, not bullet #2.