Can you contribute to an IRA with rental income?
No, not on rental income alone. IRS Publication 590-A says that earnings and profits from property, such as rental income, interest and dividends, are not compensation for IRA purposes. You need compensation, such as wages or net self-employment earnings, to contribute. A landlord with only rent has to find eligible income elsewhere.
What counts as compensation
An IRA contribution is limited by compensation. IRS Publication 590-A lists what counts: wages, salaries, tips, professional fees, bonuses and commissions. For a self-employed person, it is net earnings from the business, reduced by retirement plan contributions made for the person and the deductible part of self-employment tax.
The publication also lists what does not count. It names earnings and profits from property, such as rental income, interest income and dividend income. Pension and annuity income, deferred compensation and amounts you exclude from income are also left out.
Why this catches landlords
A landlord who reports rent on Schedule E may have a comfortable income and still no compensation. Rent on Schedule E is generally not self-employment income either, as covered in self-employment tax on rental income. That is the reason the same income can be taxed as income but not count toward the IRA limit.
| Income source | Counts as IRA compensation? |
|---|---|
| Wages from a job | Yes |
| Net earnings from a business you run, such as a Schedule C business | Yes, after the reductions Publication 590-A describes |
| Net rental income on Schedule E | No |
| Interest and dividends | No |
| Pension or annuity income | No |
Cases where a landlord can still contribute
- You or your spouse have a job or business that produces wages or net self-employment earnings. A married couple filing jointly can contribute based on the combined compensation, under the rules in Publication 590-A.
- You provide substantial services for the tenants and report on Schedule C, so the net earnings are self-employment income. This is the exception where rental activity is treated like a business; see the substantial services discussion.
- You are a real estate professional with other qualifying work income.
Do not recharacterize your rents to fit. Whether services are substantial depends on the facts, and the answer also changes your self-employment tax. Ask a preparer before choosing a form.
A worked example
Example a made-up retiree has $38,000 of net rental income on Schedule E and $4,000 of interest, no job and no business, and a spouse who does not work. Compensation for IRA purposes is $0, because rent and interest are excluded. The retiree cannot make a regular IRA contribution for that year based on those earnings.
Example the same retiree takes a part-time job paying $9,000 of wages. Compensation is $9,000. The contribution is limited by the annual IRA limit and cannot exceed $9,000. Check: the $38,000 of rent adds nothing to the $9,000.
The annual limit changes each year, and the rules for each type of IRA differ. Check the current limit in Publication 590-A for the year you are contributing.
What landlords can do about retirement saving
- Use a workplace plan at a job, if you have one.
- Ask your preparer whether a self-directed IRA that holds real estate fits, with its own rules and risks.
- If you have a business with compensation, ask about a plan that fits a business owner.
- Keep paying down the mortgage and building cash flow. Rent is real money for retirement even though it does not support an IRA.
This post cites the IRS publication and does not give tax or investment advice. Rules for each IRA type and each year differ, so check them or ask your preparer.
How DoorKeeping handles it
DoorKeeping reports rental income and expenses per property and for the whole portfolio, which is useful input for your preparer. It does not compute IRA eligibility. Ask Claude or ChatGPT for the year's net income per property, and give that to your preparer along with any wages or business income.
Sources
Questions
- Can I contribute to an IRA if my only income is rent?
- Not based on rent. IRS Publication 590-A says rental income is not compensation for IRA contributions.
- What income counts for IRA contributions?
- Wages, salaries, tips, professional fees, bonuses, commissions, and net earnings from self-employment, with reductions the publication describes.
- Does my spouse's income help?
- For a married couple filing jointly, the rules in Publication 590-A let one spouse's compensation support a contribution for the other, up to limits.
- Is rental income self-employment income?
- Generally not on Schedule E. It can be if you provide substantial services and report on Schedule C. Ask your preparer.