The Traditional IRA Eligibility According to the Government
A Traditional IRA allows you to set pretax income aside in a tax-deferred retirement account. Income taxes on contributions, earnings and capital gains in a Traditional IRA are postponed until you start withdrawals at retirement. But you must meet age and compensation rules to be eligible to open a Traditional IRA, according to the Internal Revenue Service's Publication 590.
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Age
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You must be under age 70½ to open a Traditional IRA, says the IRS. The rules for Traditional IRAs require that you stop making contributions and start taking withdrawals at 70½. Penalties will be imposed if you don't start IRA withdrawals at that age.
Compensation
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Federal rules require that you have taxable compensation before you can open a Traditional IRA. Compensation includes income from wages, salaries, professional fees and bonuses you received for work you performed.
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Other Income
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Compensation also includes income from tips, commissions, taxable scholarship or fellowship payments, self-employment, alimony and separate maintenance payments, and military differential and combat pay. You can open a Traditional IRA even if you are covered by another retirement plan, but the deductibility of contributions may be limited.
Non-Compensation Income
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Certain types of income are not compensation for IRA eligibility purposes, says the IRS, even if they are taxable. You can't open a Traditional IRA if your income is entirely from rental or sale of real estate you own, interest and dividends from your investments, payments from annuities or pensions, deferred compensation from previous years, passive partnership income or foreign earned income.
Marriage Compensation Rule
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You and your spouse can each set up a Traditional IRA if you are both 70½ and you both had compensation, says the IRS. If you are married filing separately, each of you must show compensation. If you are married filing jointly, only one of you needs to have compensation. Married couples can't both participate in the same Traditional IRA. Each must open a separate IRA.
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References
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