Is it Possible to Make a Self-Directed IRA Contribution Without Earned Income?

As you probably already know, traditional individual retirement arrangements (IRAs) were created to provide working people with a tax-deferred vehicle for accumulating savings that will supply them with income after they retire. The Self-Directed IRA contributions are deducted from taxable earned income and effectively allow savers to postpone paying taxes on the contributions until they withdraw the money, typically after they retire.

If you have earned income in 2018, you can contribute up to $5,500 (or $6,500 if you are over 50) or the amount of your earned income, whichever is less. However, the rules that govern Self-Directed IRAs make a distinction between what qualifies as income and what does not. Qualified compensation comes in a variety of forms:

  • Wages
  • Salary
  • Tips
  • Professional fees
  • Bonuses
  • Commissions
  • Self-employment income
  • Alimony
  • Non-taxable combat pay

For Self-Directed IRA purposes, compensation does not include the following:

  • Earnings and profits from property (rental income or royalties)
  • Interest and dividend income
  • Pension or annuity income
  • Unemployment income
  • Social security
  • Income from certain partnerships

It would seem that without taxable compensation, you lose all eligibility for a direct Self-Directed IRA contribution. So, is there an option for stay-at-home parents, those on disability, or the unemployed? Or are they flat out of luck?

The Self-Directed Spousal IRA is the exception

If you do not have wages and are married, there is a way to make contributions to a Self-Directed IRA—with a Traditional or Self-Directed Roth Spousal IRA. These are retirement accounts that were created specifically to allow a working spouse to make contributions on behalf of a non-working spouse.

Here is how it works: If you are married filing jointly, you may contribute the maximum into a Self-Directed IRA for each spouse—even if only one of you has earned income—as long as the spouse that is working has enough income to at least equal both contributions.

For example, you and your spouse, both 45 years of age, want to contribute the maximum of $5,500 to each of your Self-Directed IRAs. The spouse who is working must have earned income of at least $11,000 to cover both contributions.

Self-Directed Spousal Roth IRAs work the same way except that there are income limits on contributions. For 2018, married couples filing joint tax returns have the amount they can contribute phased out when their modified adjusted gross income is between $189,000 and $199,000.

One thing to remember about the Self-Directed Spousal IRA is that if the non-working spouse goes back to work, he or she can contribute to the same Self-Directed IRA. Once it is opened, a Self-Directed Spousal IRA is an Individual Retirement Account like any other.

So, even if you cannot contribute directly to your Self-Directed IRA, a Self-Directed Spousal IRA can make it possible to have money set aside for your retirement in a tax-advantaged account.

Get the most from your portfolio with a Self-Directed IRA

At American IRA, we believe that Self-Directed IRA investing is the key to a prosperous retirement. In today’s financial environment you need the versatility and power of a Self-Directed IRA to provide you with additional returns for your portfolio–over and above conventional assets such as stocks, bonds, mutual funds, annuities and the other common assets you keep hearing about.

Investment options include:

  • Self-Directed Real Estate IRA
  • Private IRA Lending
  • Tax Lien IRA
  • Privately Held Companies
  • Precious Metals IRA
  • and much more…

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

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