A retired schoolteacher spends eleven years contributing to a Roth IRA.
Her income is a pension and Social Security. Both arrive as money. Both appear on her tax return. Both feel like income in every way a person would use the word.
Neither one qualifies.
Every contribution she made after retiring was an excess contribution, carrying a penalty that applies again every year the money sits there. Eleven contributions, eleven separate penalty clocks, none of which anyone mentioned.
Her brokerage accepted every deposit without a word. It does not know her income sources. It is not required to check. It processes transfers.
This is the quietest expensive mistake in retirement saving, and it happens because the rule uses an everyday word in a very specific way.
Gif by jeopardy on Giphy
An IRA requires taxable compensation. Not income. Compensation.
The difference is the whole article.