Disability income, such as income received by disabled veterans, is not considered "compensation" for the purpose of contributing to an IRA. However, all is not lost. You may invest your income in bonds, mutual funds or other assets. Some investments allow you to defer paying taxes on the interest and other earnings until you cash-in the investment (similar to earnings in Traditional IRAs). With other investments, the interest/earnings may be taxed in the year they are received.

For more detailed information, you should contact your financial advisor or financial institution and ask to speak with someone who is knowledgeable about the tax treatment of the return on investments. They should be able to provide investment options that suit your specific needs. (To learn more about bonds, see our Bond Basics tutorial. For more on mutual funds, see our Mutual Fund Basics tutorial.)

This question was answered by Denise Appleby
(Contact Denise)

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