Publication 590 |
2000 Tax Year |
Who Can Set Up a 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 70 1/2
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 are covered by an employer
retirement plan. See How Much Can I Deduct?, later.
Both spouses have compensation.
If both you and your spouse have compensation and are under age 70 1/2, each of you can set up an IRA. You cannot both
participate in the same IRA.
What Is Compensation?
As stated earlier, to set up and contribute to a traditional IRA,
you or your spouse must have received taxable compensation. This rule
applies to both deductible and nondeductible contributions. Generally,
what you earn from working is compensation.
Compensation includes the items discussed next.
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 this purpose
only if shown in box 1 of Form W-2.
Commissions.
An amount you receive that is a percentage of profits or sales
price is compensation.
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 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. See Publication 533,
Self-Employment Tax, for more
information.
When you have both self-employment income and salaries and wages,
your compensation includes both amounts.
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.
Alimony and separate maintenance.
Treat as compensation any taxable alimony and separate maintenance
payments you receive under a decree of divorce or separate
maintenance.
What Is 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.
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