Hello,

The question comes up often where a person leaves a company and is receive severance pay after they separate from service and whether that income would qualify as earned income to qualify IRA contributions. There seems to be conflicting info online where some resources say it qualifies and other say it doesn’t.

I would think if the severance is being reported in box 1 of the W2 that IRS would deem it to be earned income, even if paid out after being employed with a company. Does that sound right?

Any scenarios where severance would NOT be considered earned income to qualify retirement contributions?

Thank you.