16 Responses to "How to Save When You Don’t Have Earned Income"

  1. Daisy says:

    Can you not contribute to retirement in the states unless you work? I don’t think that’s the way it is in Canada, but I could be wrong. I’d just keep saving away anyway. While RSPs in Canada are probably one of the better interest rates, there are some decent rates out there other than those, so I guess I’d just find one of them!
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    1. Emily says:

      Tax-advantaged retirement accounts are only available to people with earned income – that was the subject of my post on Tuesday.

  2. WorkSaveLive says:

    Great area to focus on Emily! I’ve never really thought about this situation.

    For starters, if the couple has enough money to cover their basis expenses, they have to be earning it somehow…so I’m going to assume that one spouse is working and the other is laid off: well, you can open a spousal Roth IRA (or IRA) and both can make Roth IRA contributions even though one isn’t working.

    If they are both unemployed and covering their basic necessities via unemployment checks then that is a different conversation.

    If the unemployment was a short-term thing then I really like your ideas you described at the beginning. If it’s a long-term thing though I would look at contributing to the Brokerage account and get some compound interest in my life to work in my favor.
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    1. Emily says:

      I agree with you in the case of unemployment, but I was really speaking to the 1099/not-earned-income situation that I wrote about last Tuesday. I guess I didn’t make that clear in the introduction to the post.

  3. If you don’t want to use traditional retirement accounts, the next thing I’d look into would be dividend stocks. Dividends are classically taxed lower than normal standard income (15% I believe is the max), so you’d be paying less on the income you get from them than say from capital gains, etc. I just bought my first dividend stocks recently. It was PRETTY easy to do.
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    1. Emily says:

      Thanks for adding this. I didn’t realize dividends were taxed lower than income taxes. We have some dividend mutual funds right now in our brokerage account, but we’re in the 15% tax bracket so maybe that’s why we didn’t notice the rate difference.

  4. The problem with taking a second job in order to have earned income to invest in an IRA: There are lower income limits as well. In 2009, my wife and I had to file seperately and I only had ~$9000 of income. I wound up getting a penalty for over-contributing to my Roth! And I contributed something in the area of $150 that year.
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    1. Emily says:

      Can you provide an IRS reference for that rule? I have never heard of income minimums for Roths aside from the earned income issue and I don’t see it in Publication 590. I know that there is a $10,000 maximum on married filing separately living together but it sounds like that shouldn’t have applied in your case. Are you sure you had earned income?

  5. So if I don’t have any earned income and I want to save money, I should earn some income as point #2 states. This seems a bit contradictory to the point of the article?
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    1. Emily says:

      I was assuming that at least some people in that situation would have the option of taking a second job. Personally, I’m not allowed to have an second job. However, many graduate programs do not pay a living wage and the students are expected to take outside part-time jobs to make ends meet. My point there is that perhaps instead of making money through a non-earned route – like doing clinical studies, for instance, which was very popular at my last job – the person should seek a part-time job that pays with a W-2.

  6. […] In my next post I will suggest ways that graduate students being paid with 1099-MISCs can save for the future despite their lack of earned income. […]

  7. […] interest and miscellaneous softer arguments.  If you’re stuck with a 1099-MISC, there are a few other strategies you could use if you are determined to […]

  8. JP says:

    Assuming a graduate student paid on a 1099 with no earned income, can savings invested in a taxable brokerage account be later converted to tax-advantaged space? In other words, can I, after graduation and acceptance of a real job, convert my taxable brokerage holdings to a ROTH or ROTH 401k? Or could I convert to a 401k, then roll them over to a Roth? I ask because I see taxable brokerage holdings as a last resort, and one that I want to move out of ASAP.

    1. Emily says:

      I don’t think there is a “conversion” available (the way you can convert a traditional IRA to a Roth, for instance). I think your best option would be to use the money saved during grad school to quickly fund an IRA and schedule your 401(k) to be maxed out (or a self-employment retirement plan, if applicable) while drawing down your savings as soon as you can after grad school. If you were already going to max both out with your first Real Job, I don’t know of another way to get the taxable money into a tax-advantaged account. But I’m not a financial advisor so I don’t know for sure! You might also be interested in Cash Rebel’s recent article on capital gains taxes. I know we’re currently paying 0% tax on the money in our taxable accounts, so if your tax rate stays low enough for long enough it might be better to stay in taxable accounts. So it’s not a bad option if you’re in the 15% income tax bracket.

  9. […] student finances, by evolvingpf is really the appropriate person for this question.  Here’s her answer from 2012 on her original website.  Her answers are what I first thought as […]

  10. Sean Forster says:

    So, something I am not finding really addressed anywhere. I have non-taxable income. I am on disability from the VA for military service and I have tenuous Social Security Disability that is subject to the whims of a judge deciding whether or not they decide this time around that they think that my doctors are qualified to render my diagnoses and treatments this time or not, losing me 33k or suspending 10s of thousands of dollars for many years at a time. So people like me need a way to sensibly invest, but are not finding any resources that tell us much of anything outside of traditional standards for the usual retirement options of retirement people working wage and taxes. When I don’t have an income, taxably reportable, I cannot contribute to IRAs. And when I cannot invest my income, then the SSA can take all of the money I have saved up for that house I was about to buy after 5 years of saving after 3 years of review because a judge was going particularly hard liner against allowing people to retain their SSD benefits. They obviously cannot take the money from me if it is tied up while I await the appeals courts, but if it is loose, I lose the money and become trapped for the next couple years and cannot even use the money to work towards my future at the paltry savings interest rates in my savings accounts. So finding information that allows, regardless of the mercurial nature of the SSA judges, it would be a godsend to those of us disabled and needing a better way for our lives but struggling to educate ourselves effectively due to our disabilities, such as in my case severe pain and brain fog during severe flare ups that happen frequently.

    Thank you.

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