What is Earned Income?

By Elsie Dudukovich0 Comments

IRS Publication 590-A provides details for contributing to Traditional and Roth IRAs as well as SIMPLE IRAs and Simplified Employee Pension (SEP) IRAs. 

One of the many important items discussed is the eligibility requirements for opening and contributing to the various retirement plans. While there are some differences regarding amounts, having taxable compensation is one of the requirements for opening both a traditional and Roth IRA. This is also known as earned income.  

Publication 590-A identifies taxable compensation as:
  • wages, salaries, etc.       
  • commissions     
  • self-employment income.         
  • alimony and separate maintenance
  • nontaxable combat pay
Publication 590-A also notes what is not considered taxable compensation:
  • earnings and profits from property
  • interest and dividend income
  • pension or annuity income
  • deferred compensation
  • income from certain partnerships
  • any amounts you exclude from income
Publication 590-A also notes for in the cases of non-working spouses, it may be possible for the non-working spouse to also have an IRA if they file their tax return as married, filing jointly.  The working and non-working spouse may contribute to an IRA if the working spouse earns enough taxable compensation equaling the total amount contributed to both IRAs or up to the IRS defined contribution limits if the working spouse makes more.

Get more information on spousal IRAs