You Need Earned Income for an IRA
If your only source of income is unemployment compensation, you can't contribute to an IRA.
I only received unemployment compensation through the state in 2007. Does that qualify as earned income for an IRA?
"The answer is no," says IRA expert Ed Slott, author of Your Complete Retirement Planning Road Map. Unemployment insurance doesn't count as earned income for IRA eligibility.
It's a good question, though -- so good that Congress didn't consider it when writing the original tax rules, says Slott. But it was ruled on years later in the tax regulations and in a tax court case, which clarified that unemployment compensation doesn't count for IRA eligibility.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Because you can only contribute up to the amount of your earned income, you won't be able to make any IRA contributions for 2007.
There is an exception, however. If you have a spouse who had earned income in 2007, then she can contribute to an IRA on your behalf. She'll need to make the 2007 contribution by April 15, 2008.
For more information about the rules for spousal IRAs, see How a Spousal IRA Works. For more information about IRAs, see Everything You Need to Know About IRAs.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
Stock Market Today: Nasdaq Soars Ahead of Tesla Earnings
The EV stock rose nearly 2% ahead of its highly anticipated Q1 earnings report, due after tonight's close.
By Karee Venema Published
-
GM Stock Accelerates After Earnings Beat
General Motors beat expectations for the first quarter and raised its outlook for the year. Here's what you need to know.
By Joey Solitro Published
-
Will Retirees Stop Paying Tax on Social Security Next Year?
Social Security Lawmakers have proposed to eliminate taxes on Social Security benefits. Here’s what that could mean for you.
By Katelyn Washington Last updated
-
The Downside of Delaying RMDs
Thanks to the SECURE 2.0 Act, the age for required minimum distributions is going up. However, don't automatically assume you'll benefit from this change.
By Jackie Stewart Published
-
Retirement Saver's Tax Credit Converted to "Saver's Match"
President Biden has signed legislation that turns the Saver's Credit into a government match to your retirement plan contributions.
By Rocky Mengle Published
-
How to Get Retirement Income You Can Count On – for Life
Sponsored Content from Athene
By Staff Published
-
Does an Annuity Belong in a 401(k)?
Making Your Money Last Unlike pensions, 401(k)s place the risk of outliving savings squarely on the retiree's shoulders. Find out what's right for you.
By David Rodeck Published
-
Income Annuities Take Risk Out of Retirement
annuities When used properly, annuities provide invaluable security, so why aren't more people going for them? A study has some insights and recommendations, while Congress tackles legislation to encourage their use.
By Ken Nuss Published
-
SECURE Act Has Changed the Inherited IRA Rules
inheritance The IRS recently proposed a major change in the way inherited IRAs work for those subject to the SECURE Act’s 10-year rule. Inheritors need to be ready.
By Steve Parrish, J.D., RICP® Published
-
Everyone Is Talking about Roth IRA Conversions – Here’s Why
Roth IRA Conversions Two reasons to consider a Roth conversion now, plus some traps to avoid.
By Michael Aloi, CFP® Published