"Earned Income" for Roth IRA Contribution and Conversion | Ed Slott and Company, LLC

"Earned Income" for Roth IRA Contribution and Conversion

For both the new Making Work Pay credit (for up to $400 per person) and to contribute to a Roth IRA, you need earned income to qualify in either case. Earned income includes wages from a job, and excludes investment income. What about [taxable] unemployment compensation? My inkling is that it is not earned income, but I wanted to be sure. Also this year I converted my full 401k to a Roth IRA. Is this considered earned income? I ask because it is earned (I worked for it at a job in past years), it is income, and it will be taxed this year. It is not exactly a pension, either, as it's staying in the account. I'm not retiring anytime soon. Thanks.

You are correct that UC is not considered earned income. It is just an insurance benefit to offset your loss of that earned income. A Roth conversion is also not earned income, nor is the distribution from a Roth IRA for expenses. It is ordinary income but not earned income. Investment income is another example of income that is NOT earned income. But your post title shows for Roth contribution and conversion. You do need earned income for a regular Roth contribution, but not for a conversion. Therefore, your conversion to a Roth IRA is also not earned income, but you do not need earned income to do a conversion.

thx, alan, you answered my 2 questions. my title was a little confusing, that's all.
 

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