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Let's assume Jane is retired, and has no income from employment. She still would like to contribute to her IRA [or Roth IRA], but this is not allowed from capital gains or dividend income.

Now Jane does a IRA to Roth IRA conversion - the amount she converts is considered taxable income.

Question: Does this taxable income qualify, so she can use money from her savings, and contribute it to her IRA or Roth IRA (up to the annual limit), effectively moving more money into the tax-deferred or tax-free accounts?

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The sum of your (Traditional and Roth) IRA contributions cannot exceed your "taxable compensation" for the year. (Or, for spouses filing as Married Filing jointly, the sum of both their IRA contributions cannot exceed their joint taxable compensation for the year.)

The section of Publication 590-A on the General Limit for Traditional IRA contributions says:

For 2019, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts.

  • $6,000 ($7,000 if you are age 50 or older).
  • Your taxable compensation (defined earlier) for the year.

And similarly, the one for Roth IRA contributions if you contribute to Roth IRAs only says:

If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of:

  • $6,000 ($7,000 if you are age 50 or older), or
  • Your taxable compensation.

Note that in both cases, it is not all taxable income that counts, but rather taxable "compensation". The section What is Compensation? describes what does and does not count as "compensation". Although it doesn't mention income from IRA withdrawals or conversions specifically, it does say that compensation is generally what you earn from work, as shown on your W-2, so I don't think it would include income from conversions.

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