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Can one contribute to IRA if the income for the year is received from stock sale only (no W2)?

What I have been reading is that in order to contribute $X to IRA I need to have earned $X of income, and interest income does not count. How about income from selling stocks? If you could provide reference to some more information online that would be wonderful.

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Your contributions must come from "compensation". Quoting IRS Publication 590 on IRAs, "Generally, compensation is what you earn from working."

So it is unlikely that your stock sale proceeds, if they're your sole source of income, can be used to fund your IRA.

If you do have W-2 income, or self employment income, you can use the proceeds of a stock sale to fund an IRA. The IRS doesn't care where the exact dollars that go into the IRA come from, only that you earned (from working) at least as much as you contributed.

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  • Very useful info; found a link online with further information but from someone who has the problem of reaching the upper income limit for contribution: bogleheads.org/forum/viewtopic.php?f=2&t=133378 – user2686641 May 15 '14 at 17:12
  • @user2686641 For Traditional IRAs, there is no upper income limit for contributions; but there is a limit beyond which Traditional IRA contributions are not deductible from current income. – Dilip Sarwate May 16 '14 at 2:44
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Traditional IRA contributions can be made if you have compensation and the amount of the contribution is limited to the smaller of your compensation and $5500 ($6000 if age 50 or more). Note that compensation (which generally means earnings from working) is not just what appears on a W-2 form as salary or wages; it can be earnings from self-employment too, as well as commissions, alimony etc (but not earnings from property, pensions and annuities, certain types of partnership income) You must also not have attained age 70.5 in the year for which the contribution is made.

Even if you don't have any compensation of your own, you can nonetheless make a Traditional IRA contribution if your spouse has compensation as long as you are filing a joint tax return with your spouse. For spouses filing a joint return, the limits are still the same $5500/$6000 for each spouse, and the sum total of Traditional IRA contributions for both spouses also must not exceed the sum total of earned income of both spouses. The age limits etc are all still applicable.

Note that none of this says anything about whether the contributions are deductible. Everyone meeting the above requirements is eligible to make contributions to a Traditional IRA; whether the contributions can be deducted from current income depends on the income: those with high enough incomes cannot deduct the contribution. This is different from Roth IRAs to which people with high incomes are not permitted to make a contribution at all.

Finally, the source of the cash you contribute to the IRA can be the proceeds of the stock sale if you like; you are not required to prove that the cash received from compensation is what you sent to the IRA custodian.

Read Publication 590 (available on the IRS website www.irs.gov) if you need an authoritative reference.

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  • Necroed updates: per TCJA, alimony from a divorce decree/settlement established or modified in 2019 or later is no longer compensation; per SECURE, as of 2020 the age limit of 70.5 to contribute is repealed, and the age for RMD is increased to 72 (and per CARES, for 2020 only RMD is waived entirely). – dave_thompson_085 Oct 2 '20 at 6:46

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