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I am trying to understand what is considered earned income for the purpose of contributing to a Roth IRA. Can you provide some clarification?
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Earned income for a Roth IRA is the income you receive from working, such as wages, salaries, tips, and other forms of compensation. It does not include unearned income like interest, dividends, or gifts. To contribute to a Roth IRA, you must have earned income and be within the income limits set by the IRS. The limits are adjusted annually for inflation. For 2021, the maximum contribution limit is $6,000, or $7,000 if you are aged 50 or older. The ability to contribute to a Roth IRA is also subject to income limits. For 2021, the income phase-out range for single filers is between $125,000 and $140,000, and for married couples filing jointly, it is between $198,000 and $208,000. If your earned income falls within these limits, you may be eligible to contribute to a Roth IRA and enjoy the tax benefits it offers.
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