Since it's year end (or the new year when you're reading this), I was thinking about contributing to my existing Roth IRA or at least moving some money from my traditional IRA to my Roth. I wanted to be sure I was operating within the law, so I looked up the rules, and it says to contribute to an IRA, I need "earned income," which specifically excludes rental income, dividends, interest, and retirement distributions. That's all my money. I tried Googling it, but I end up with a sea of results about self-directed IRAs, which is a totally different topic. For those of you like me, earning all your money from rents, what are you doing when it comes to retirement savings?
@Amy Pfaffman Yes, you are correct that you must have earned income in order to contribute to these specific investment vehicles. If you want to move forward with the IRA route, then you're going to have to generate earned income.
If, by chance, you still do the management side of things, you can set up a separate company that bills your properties' LLC for your services. This is a way to generate earned income for something you may already be doing. Make sure to talk with an accountant before you embark on this strategy.
Also, if you're married and your spouse still works a traditional job, you can contribute to their IRA. As long as your spouse's income is high enough to cover your IRA contributions and you file a joint return, you can both make an IRA contribution since the IRS looks at income earned by either member of a married couple as being earned by both of them.
At the end of the day, there are many other ways to invest your money. You are not restricted to IRAs. You may favor an investment vehicle that doesn’t have this earned income requirement.
Thanks to both of you for responding. I have a few follow-up questions. I set up both a traditional and a Roth IRA back before I started real estate investing. Do you know if I can transfer from my traditional to my Roth without earned income? I know it's possible under normal conditions.
Also, I have another business that accounts for about 5% of my annual income and is not in the excluded categories. Is that enough to count as earned income? What are the lower limits of earned income?