compensation/income for IRA contributions
Client’s only source of income is a series of structured settlements from a malpractice lawsuit. Is she eligibile to contribute to an IRA? Don’t recall seeing any PLRs or Rev. Rulings on this specific point. If you can provide a PLR or RR as a cite, I’d appreciate it.
Permalink Submitted by Alan Spross on Tue, 2008-11-04 20:08
The settlement would not meet the definition of “compensation” under Sec 219, and therefore no IRA contribution could be made, even if part of the settlement is taxable. Definition from Sec 219:
>>>>>>>>>>>>>>>>
f) Other definitions and special rules
(1) Compensation
For purposes of this section, the term “compensation” includes earned income (as defined in section 401(c)(2)). The term “compensation” does not include any amount received as a pension or annuity and does not include any amount received as deferred compensation. The term “compensation” shall include any amount includible in the individual’s gross income under section 71 with respect to a divorce or separation instrument described in subparagraph (A) of section 71(b)(2). For purposes of this paragraph, section 401(c)(2) shall be applied as if the term trade or business for purposes of section 1402 included service described in subsection (c)(6).
>>>>>>>>>>>>>>>>>>