Is it true that you can only use money earned to contribute to an ira? -

I m in the military and deployed all my wages are tax free and i m told that when i go to do my taxes it will show that we didn t make hardly anything, but in all honesty we made a lot with no expenses|::::|Combat Pay is considered earned income for retirement purposes. You can put money into an after-tax TSP, a ROTH or as a non-deductible IRA. There is additional paperwork to keep track of since the contributions stay tax-exempt, but on the earnings become taxable in the TSP/IRA. (I d go for the ROTH). The W-2 will show the combat pay in box 12 with a code of Q.|::::|The Heroes Act passed in 2006 now allows tax-free combat pay to be used for purposes of qualifying for several tax benefits. One of those benefits is an IRA (either Roth or traditional). Another is the Earned Income Credit and Child Tax Credit. Since you owe no tax, you probably want to do a Roth IRA because the tax benefits will be better for you. You cannot make use of the deduction for a traditional IRA. Your spouse may contribute to an IRA (Roth or traditional) as well based on your combat pay. If you use software and correctly enter your W-2 information, you should get the correct credits. Combat pay is coded Q in Box 12.|::::|The contribution limit to your traditional IRA for 2008 is smaller of the following amounts: ? $5,000, or ? Your taxable compensation for the year. If you were age 50 or older before 2009, the most that can be contributed to your traditional IRA for 2008 will be the smaller of the following amounts: ? $6,000, or ? Your taxable compensation for the year. TaxRef http://www.pdftax.com/|::::|You need earned income. Your military pay will qualify even if you are temporarily tax-exempt. It s still earned income.