Am I able to contribute to Roth IRA with W2 residual payments?

[starkyfubbs]

As a musician, once a year I receive a check for residual payments for work done in prior years. This residual income is reported on a W2 and not a 1099-Misc. Per the fund that distributes these payments: "Musicians receive W2’s as they are receiving performance-based residuals. Residuals are categorized by the IRS as deferred wages, thus are subject to taxation."

I understand that in order to contribute to an IRA, one needs earned income from working. However if I did not work in 2021, and my only source of income are these residual payments, am I able to contribute to a Roth IRA with this money? In other words, are these residual payments earned income or unearned (passive) income?

This is where I am confused. Residual payments (like royalties) seems like passive income by definition; something one collects, but does not actively work for, since it is for work performed in past years. However, the fact that it is reported on a W2, does that make it earned income?

Thank you.

[DaveF1006 · Accepted solution]

In order for me to give you a definitive answer, I researched this following Turbo Tax post. Although this is an example of self-employment income, it does state that residual income is earned income, whether it be self-employment income or from an employer. The IRS looks to the origin of the payment to determine its taxability. The residual income you receive is of the same character as the income you received when you were in working.  

Therefore, the fact that it is reported on a W2 makes it earned income.