However, you may not be able to deduct all of your contributions if you or your spouse are covered by an employer retirement plan. Both spouses have compensation. As stated earlier, to set up and contribute to a traditional IRA, you or your spouse must have received taxable compensation. This rule applies to both deductible and nondeductible contributions. Generally, what you earn from working is compensation.
Compensation includes the items discussed next.
Wages, salaries, etc. Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. An amount you receive that is a percentage of profits or sales price is compensation. When you have both self-employment income and salaries and wages, your compensation includes both amounts.