Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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Prepare for the Series 6 Test. Use quizzes, flashcards, and multiple choice questions, all with hints and explanations. Ace your exam confidently!

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What type of income allows a person to contribute to an IRA?

Passive income
Unearned income
Earned income
No income

The correct answer is: Earned income

To contribute to an Individual Retirement Account (IRA), the income that qualifies is earned income. Earned income refers to the money an individual receives through active work, such as wages, salaries, bonuses, commissions, and self-employment earnings. This type of income is essential because the IRS stipulates that contributions to an IRA must be made from compensation received for personal services. Earned income is vital for IRA contributions because it reflects the individual's ability to save for retirement through work-related earnings. Unlike unearned income—such as interest, dividends, or capital gains—earned income is the only category that directly enables contributions to an IRA. In essence, for any person wishing to grow their retirement savings through an IRA, demonstrating earned income is the pathway to make those contributions.