The contribution limit is independent of any other retirement plan that you or your wife may cover, such as a 401 (k) plan. These other retirement plans affect your ability to deduct your contribution for tax purposes, but they don't affect your ability to contribute. Anyone with sufficient earned income can contribute to an IRA. It may not be a deductible contribution, but a contribution can be made.
That leaves many other sources of income that DON'T qualify. For example, items you find on a 1099-INT or 1099-DIV, such as interest income and dividends from stocks or other investments, don't qualify. Rental income and capital gains from the sale of investments or properties are not counted. Neither do pension payments, profit sharing, IRA distributions, or distributions from retirement accounts or annuities.
Also excluded are Social Security, deferred compensation, unemployment compensation, child support, disability insurance income, and life insurance income. If you contribute more than allowed, an “excess contribution” has occurred and will need to be corrected. If you have any questions for Dan, send him an email with “MarketWatch Q%26A” in the subject line. If your parents run out of money and you need to support them, this will have a big impact on your own finances.
Dan Moisand is a MarketWatch contributor and financial planner at Moisand Fitzgerald Tamayo in Orlando, Florida. Visit a quote page and the recently viewed tickets will be displayed here. Initial tax relief is one of the main things that differentiate the rules of traditional IRAs from Roth IRAs, in which taxes are not allowed to be deducted for contributions. The penalty for leaving an excess contribution in an IRA or Roth IRA is 6% of the deductible for each year the excess remains in the account.