Filed under: Investing
IRAs can be great ways to save for retirement, but in order to qualify for them, you need to have earned income. But what is earned income, and how can you make sure you have enough of it to qualify to use an IRA?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, explains the concept of earned income. Dan notes because IRAs are designed to encourage work, lawmakers wanted to require income from a job in order to use an IRA. But earned income goes beyond simple salaries and wages, including not only tips but also other types of income like self-employment income, long-term disability payments, and union strike benefits. Yet Dan also lists some types of income that aren't earned income, including investment income, unemployment, and Social Security benefits. Although these restrictions keep some people from using IRAs, they're relatively flexible in allowing most people who get their income from their own work to use IRAs.
What should you put in your IRA?
Once you have earned income to put in an IRA, how should you invest? Your best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.
The article Earned Income: Why You Need It for Retirement Saving originally appeared on Fool.com.Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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