Let's assume A is happily living from interest and capital gains, but for various reasons he would like to contribute to his IRA.
The IRS allows only contributions that come from income earned by working, be it employed or self-employed. Aside from the obvious solution of finding a job, can a construct as described below work?
He agrees with his friend B (that has a similar target) to do self-employed work for each other: A programs an application for B, and B programs another application for A (or they mow each other's lawns, whatever). Each gets a bill for $ 7000 from the other, and pays it.
Both use the self-employed income and put it completely into their IRAs, which makes it tax-deductable, and therefore irrelevant for any tax filings. I understand there will be FICA tax to pay, 15.3%, so the plan has some cost; that would probably deter most people from it. Both can, however, deduct some cost and thereby reduce their other taxable income, which might reduce the net loss near zero, and it also helps to get the ten years minimum completed, to be able to draw a Social Security pension.
Also, you can't do it with a spouse or anyone living in the same household, it has to be a friend.
I cannot see anything illegal in that (assuming the work is really and verifiably done and delivered), it seems to be a "Backdoor IRA Contribution" method.
[Note: I am NOT asking for help or instructions to cheat the IRS or do anything other illegal - if this is illegal, please tell me why you think so].
Am I missing anything else here?
Is it legal, and does it cost 'only' the FICA tax?
Please don't get into arguing why would anyone want to put money in his IRA in this situation, or why not use a Roth instead, etc. That's not the point.