[Robert]

If I and “Mary” “hire” each other for $20k/year and put 100% of it in our respective traditional IRAs, just under the Social Security penalty?

• No income tax.
• No Social Security penalty.
• “Earned” income.
• Replenish RMDs distributions.

Seems too easy. What am I missing?

[Ross]

The tax must be paid at some point. Either by you, or whoever inherits the money (usually kids).

If it’s already been taxed, then the kids get a step up in basis, eliminating the capital gains tax, but if they inherit your IRAs, the stretch rule applies and they pay income tax on the whole thing!

This also tends to happen at the worst possible time when your kids are in their prime earning years and in a high tax bracket.

[Allison]

Why? How old are you? Most people try to reduce their exposure to deferred accounts. They don’t want an “RMD” problem. High RMD causing high taxes and possibly IRMAA consequences.

Explore these too: I maxed our Roth IRAs earlier in the year

[Gerald]

1) IRA contributions are $6,500 not $20k.
2) You need to pay FICA on wages if self employed this is self employment tax as you pay both employee and employer half and is 15.3% off the top.

[Author]

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