Earned Income Definition for Roth IRA

Submitted by Allen Broyles on Tue, 2009-10-06 16:11

I have a new client who has been receiving unemployment benefits for all of 2009. She has some money in a money market fund that she would like to use to contribute to a Roth IRA. The unemployment benefits are her only income so far in 2009. Will that allow her to make a contribution to a Roth IRA or is that not considered earned income?

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Permalink Submitted by mk foss on Tue, 2009-10-06 17:26

Unemployment benefits are not earned income. Salary, SE earnings, alimony are examples of earned income.

Permalink Submitted by Allen Broyles on Tue, 2009-10-06 18:17

Thank you. I had my own thoughts but was wanting some confirmation.

Permalink Submitted by Alan Spross on Tue, 2009-10-06 19:36

If she has a traditional IRA or old employer plan, perhaps she should consider a partial conversion to a Roth IRA. She can then use the funds that she would have used for a regular Roth contribution to pay the taxes on the conversion. No earned income is necessary to convert to a Roth IRA, but the max income limit of 100,000 still applies for 2009.