Wages, Salaries and Commissions

• Any money made at a job is considered compensation. This includes hourly wages, salaries and commissions. It also includes tips, bonuses and any fees for service. If it shows up in Box 1 of your W-2 form at the end of the year, it counts.
  
  

Self-Employment Income

• If you are self-employed, include your net business earnings for the year as part of your compensation. Subtract any deposits to a retirement plan on your behalf and one-half of your self employment tax to get your net earnings. Do not subtract any self-employment losses from your compensation for the year. You must include your self-employment income even if it's not subject to self-employment tax, and you must add back any health insurance deduction you took for the year.
  
  

Other Types of Compensation

• If you receive alimony or spousal support, include these payments in your net compensation for the year. If you are in the military, your nontaxable combat pay is also included.
  
  

Non-Qualifying Income

• You do not need to include income from properties and investments, including dividends and interest income. You should also exclude income received from pensions, annuities and deferred compensation plans. You can exclude income you receive from partnerships where you are not an active member, any Conservation Reserve Program income and any income you would normally exclude for tax purposes. This includes things like income earned in foreign countries and housing allowances.
  
  

Non-Working Spouses

• If you are married, file your taxes jointly and do not work, you may treat your spouse's compensation as your own for Roth IRA contributions. You should reduce that compensation by any contributions made to a spouse's IRA, whether it is a traditional or Roth IRA. People who file jointly may have a combined MAGI of up to $177,000 to make Roth IRA contributions.
  
  

Compensation vs. MAGI

• Remember that your compensation is not equivalent to your modified adjusted gross income for IRA contribution purposes, and it is your MAGI that effects how much---if anything---you can contribute to a Roth IRA. Use the total value of your compensation, along with deduction and other income information to calculate your MAGI using Worksheet 2-1 in IRS Publication 590.