Earned Income

[SLYKTAX]

I retired on December 2020 with an incentive of $80K to be paid to me over 2 years.   Only $10K was paid in 2020 and the remaining $70K is scheduled to be paid this year or 2021. 

Will that $70K to be paid this year after I have retired classified as an earned income?  I need that classification of an earned income to allow me to contribute to my ROTH IRA.    As a matter of fact, I have already contributed $7,000 to my 2021 ROTH. Thanks

[VolvoGirl]

Ask them if you will get a W2 for it.  Did they include the 10,000 on your W2? Or give you a separate form like a 1099Misc or 1099NEC?

[SLYKTAX]

My $10K was shown in the 2020 W2 form.  The $70K  will come at the end of the year as agreed upon retirement.  Will that be an earned income if they pay out is shown in W2 form  when you considered I have retired.  Will they give me a non W2 form? I have been asking them and haven't heard from them.

[Irene2805]

When talking about contributions to an IRA, the IRS talks about "taxable compensation " not earned income.  Taxable compensation includes:

Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). 

The screenshot below shows Table 1-1 Compensation for Purposes of an IRA from IRS Pub. 590-A - Contributions to Individual Retirement Arrangements (IRAs)  [p. 6]

It seems as if the incentive would be a bonus, and not retirement income.   Since your employer included the first payment on a W-2, they may also do that for the second payment, but you need to check with them.