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Earned Income: Why You Need It for Retirement Saving

IRAs can be great ways to save for retirement, but in order to qualify for them, you need to have earned income. But what is earned income, and how can you make sure you have enough of it to qualify to use an IRA?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, explains the concept of earned income. Dan notes because IRAs are designed to encourage work, lawmakers wanted to require income from a job in order to use an IRA. But earned income goes beyond simple salaries and wages, including not only tips but also other types of income like self-employment income, long-term disability payments, and union strike benefits. Yet Dan also lists some types of income that aren't earned income, including investment income, unemployment, and Social Security benefits. Although these restrictions keep some people from using IRAs, they're relatively flexible in allowing most people who get their income from their own work to use IRAs.

What should you put in your IRA?
Once you have earned income to put in an IRA, how should you invest? Your best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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