I have a question about the income you can use for a contribution to a Roth IRA. I'm a student and a first time investor. I want to open a Roth IRA to begin to take advantage of it as early as possible. I don't have any income from a job, but recently I just cashed in a CD and received the $2000 I would like to contribute in interest. Is this moeny appropriate to use? Thanks a lot!

John

Greetings, John, and welcome. You wrote:

<<I have a question about the income you can use for a contribution to a Roth IRA. I'm a student and a first time investor. I want to open a Roth IRA to begin to take advantage of it as early as possible. I don't have any income from a job, but recently I just cashed in a CD and received the $2000 I would like to contribute in interest. Is this moeny appropriate to use? Thanks a lot!>>

Annual contributions to a Roth or to a traditional IRA must come from earned income, and that means wages/compensation from a job. Your CD interest and principal will not qualify for the purposes of a Roth IRA contribution.

For details on IRAs, visit our IRA area at http://www.fool.com/Money/AllAboutIRAs/AllAboutIRAs.htm.

Regards..Pixy

John,
You must have earned income.
Now if you intend to work this year and earn income, you may contribute up to $2,000.
The question I have for the audience is suppose John is going to earn say $2,000 at least upon graduation.
Could he with that intention invest the $2,000 now?

MountainKing asks:

<<The question I have for the audience is suppose John is going to earn say $2,000 at least upon graduation.
Could he with that intention invest the $2,000 now?>>

Yep. As long as the tax-year ends with at least $2K of reportable earned income for tax purposes, then the $2K may be contributed to the IRA at any time during that tax-year.

Regards..Pixy

TMFPixy wrote:
Annual contributions to a Roth or to a traditional IRA must come from earned income, and that means wages/compensation from a job. Your CD interest and principal will not qualify for the purposes of a Roth IRA contribution.

I add:
If you had earned income in 1999 of at least $2,000 or will have $2,000 earned income in 2000; you can use the money from the CD to make a 1999 or 2000 contribution.

*Cat

MountainKing asks:

<<The question I have for the audience is suppose John is going to earn say $2,000 at least upon graduation.
Could he with that intention invest the $2,000 now?>>

Yep. As long as the tax-year ends with at least $2K of reportable earned income for tax purposes, then the $2K may be contributed to the IRA at any time during that tax-year.

Regards..Pixy

Please confirm...You are saying that John can open an Roth IRA in January with $2000,so long as he has earned that money by December 31 of the same year he opens the IRA? If so, I'm in shock. This is kind of like "borrowing from the future". I certainly don't doubt you. I'm just shocked that it is permissible.

LnJM002 writes:

<<Please confirm...You are saying that John can open an Roth IRA in January with $2000,so long as he has earned that money by December 31 of the same year he opens the IRA? If so, I'm in shock. This is kind of like "borrowing from the future". I certainly don't doubt you. I'm just shocked that it is permissible.>>

It's true. The contribution and the earning of the income to support that contribution must occur in the same tax-year, but the order in which they occur is unimportant for income tax purposes. Fail to earn the income to support the contribution, though, and the contribution must come out or a penalty will be paid.

Regards..Pixy