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Taxmap/pubs/p590-002.htm#TXMP77aa54b9 Who Can Set Up   a Traditional IRA?

Traditional IRA

You can set up and make contributions to a traditional IRA if:

• You (or, if you file a joint return, your spouse) received taxable compensation during the year, and
• You were not age 701/2 by the end of the year.

You can have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. See How Much Can You Deduct, later.

Taxmap/pubs/p590-002.htm#TXMP4b6fe471 Both spouses have compensation.

If both you and your spouse have compensation and are under age 701/2, each of you can set up an IRA. You cannot both participate in the same IRA.

Taxmap/pubs/p590-002.htm#TXMP1a754408 What Is Compensation?

Compensation

Generally, compensation is what you earn from working. For a summary of what compensation does and does not include, see Table 1-1. Compensation includes the items discussed next.

Taxmap/pubs/p590-002.htm#TXMP35e37cae Wages, salaries, etc.

Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.

Taxmap/pubs/p590-002.htm#TXMP3faaac59 Commissions.

An amount you receive that is a percentage of profits or sales price is compensation.

Taxmap/pubs/p590-002.htm#TXMP2fce7021 Self-employment income.

If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:

• The deduction for contributions made on your behalf to retirement plans, and
• The deduction allowed for one-half of your self-employment taxes.

Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs.

When you have both self-employment income and salaries and wages, your compensation includes both amounts.

Taxmap/pubs/p590-002.htm#TXMP22f1f747 Self-employment loss.

If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation.

Taxmap/pubs/p590-002.htm#TXMP6aeedf08 Alimony and separate maintenance.

For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance.

Taxmap/pubs/p590-002.htm#TXMP79d17904 What Is Not Compensation?

Not Compensation

Compensation does not include any of the following items.

• Earnings and profits from property, such as rental income, interest income, and dividend income.
• Pension or annuity income.
• Deferred compensation received (compensation payments postponed from a past year).
• Income from a partnership for which you do not provide services that are a material income-producing factor.
• Any amounts you exclude from income, such as foreign earned income and housing costs.

Previous Page:  Publication 590 - Individual Retirement Arrangements (IRAs)(Including Roth IRAs and Education IRAs) - Traditional IRAs Next Page:  Publication 590 - Individual Retirement Arrangements (IRAs)(Including Roth IRAs and Education IRAs) - When Can a Traditional IRA Be Set Up? Use     to find additional instances of index items.