What Exactly Is Earned Income?

Jun 12, 2023
Est. Read Time: 2 minutes

We Answer the Common Question: What is my Earned Income when calculating IRA contribution limits?

Your level of Earned Income determines whether you’re eligible to contribute to your IRA (or how much you can contribute to a Roth). But what exactly is Earned Income, and how much of it do you have?

What qualifies as Earned Income for IRA computations?
(The below is not presented as an exhaustive list)

  • On your Form W-2, the dollar amount shown in box 1 is compensation. If you have two or more jobs, you will add the box 1 amounts together.
  • Do you have income as an independent contractor? Look at your Form 1099 (s)
  • Do you operate a business? The compensation is your “net” after deducting expenses. Your tax professional will be helpful in determining this amount.
  • Miscellaneous income such as jury duty or committee work that pays you a fee
  • Some scholarships (if shown on a W-2 in box 1)
  • Alimony or support payments (if income taxable)
  • Combat pay (even when it is not counted as a portion of taxable income)

What does NOT qualify as Earned Income for IRA computations?

  • Income from Social Security (even though you worked to get the money into the Social Security account)
  • Unemployment benefits (even though in several places the IRS calls it “Unemployment Compensation”)
  • Severance pay (even though it is taxable income)
  • Insurance proceeds (life, health, property)
  • Passive income such as rent income
  • Interest and dividends
  • Retirement income from a former employer’s plan
  • IRA and 401(k) proceeds


For information about a Self Directed IRAs, Solo 401(k)s, or alternative investments,
call IRA Club at 312-795-0988 or click here to schedule a call.



IRA Club offers no investments, products, or planning services. Therefore, please consult your attorney, tax professional, financial planner, and any other qualified person before making any investments. Be advised that IRA Club does not evaluate, review, monitor, recommend, warrant, guarantee, or otherwise endorse the legality, tax treatment, propriety, performance, or reliability of any investment, service, statement, opinion, or other representation provided with respect to the investment opportunities listed on its site or their sponsors or providers. IRA Club has no financial arrangement, partnership, joint venture, or other affiliation with the sponsors or providers of these investments. IRA Club shall not be liable for any misinformation, misrepresentation, negligence, act, omission, investment results, or any wrongdoing with respect to any of these investments or their sponsors or providers.

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