Compensation is the salary or wages you receive as an employee. If you are self-employed, compensation is your net income for personal services performed for the business.
All taxable alimony is considered compensation.
Interest, dividends, and most rental income is passive income and is not considered compensation. Deductibility of your contribution is based on whether or not you or your spouse are an active participant in an employer-maintained retirement plan. If you are an active participant, the deductible amount is dependent on your MAGI and income tax-filing status. You may be eligible for the maximum deduction, a partial deduction, or no deduction. The nondeductible portion of the distribution is not taxable when withdrawn nor is it subject to the 10 percent premature-distribution penalty.