Real Estate Income and IRA Contributions

Course: Retirement Planning
Lesson 1: Using IRAs to Build and Distribute More Retirement Income

Student Question:

This page states that rental income is not included in the definition of earned income.  If the client is a professional real estate developer whose income is derived mainly from rental income, would they be able to contribute to an IRA utilizing their business income?  Is this considered self-employment income for the purposes of determining ability to contribute?

Instructor Response:

Great question. Generally, a real estate professional whose business is renting real estate and who materially participates in the business activity has active, not passive, income.  If the business is a “flow through” business, the active income is self-employment income.  Self-employment income generally qualifies for an IRA contribution.