Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 - Free CRPC Practice Questions and Study Guide

Contributions to both traditional and Roth IRAs are contingent upon the taxpayer having earned income during the tax year. Earned income includes wages, salaries, bonuses, commissions, and self-employment income, which qualifies individuals to contribute to these retirement accounts.

For a traditional IRA, if a taxpayer satisfies the income requirement, they can make contributions with the potential for tax deductions, depending on their income level and participation in an employer-sponsored retirement plan.

Similarly, Roth IRAs require earned income for contributions, and those contributions are made with after-tax dollars, allowing for tax-free withdrawals of contributions and earnings in retirement, provided certain conditions are met.

On the other hand, Education IRAs, now known as Coverdell Education Savings Accounts, do not require earned income to contribute, as the contributions can come from anyone, such as a parent or grandparent, making them a distinct category.

Understanding these distinctions is crucial for retirement planning, as they influence when and how much individuals can save for retirement based on their income levels.