Question

Which of the following is considered compensation for determining the maximum contribution That a person can make to a ROTH IRA?

-Commission on insurance premiums OR rental income OR US bond interest OR unemployment compensation

Answer 1

A ROTH IRA is a special retirement account that you fund with post-tax income(you can't deduct your contributions on your income taxes}. Once you have done this, all future withdrawals that follow ROTH IRA regulations are tax free.

Compensation Defined :

Internal Revenue Service (IRS) Regulation 1.219-1(c) defines compensation as “wages, salaries, professional fees, or other amounts derived from or received for personal service actually rendered (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses) and includes earned income, as defined in IRC Section 401(c)(2), but does not include amounts derived from or received as earnings or profits from property (including, but not limited to, interest and dividends) or amounts not includable in gross income”. Compensation does not include amounts received as deferred compensation, pension or annuity payments (including IRA distributions and social security benefits), nor does it include amounts excluded from income such as foreign earned income. Compensation also includes taxable alimony and separate maintenance payments as well as any nontaxable combat pay, (reported in box 12 of Form W-2 with code Q). Additionally, scholarship and fellowship payments are compensation for IRA contribution purposes (if shown in box 1 of form W-2).