Certified Financial Consultant (CFC) Practice Exam

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Who is eligible to purchase an Individual Retirement Account (IRA)?

Anyone under the age of 70 1/2 who has unearned income.
Anyone under the age of 70 1/2 who has earned income.
Anyone of any age who has earned income.
Anyone over the age of 18.

The correct answer is: Anyone under the age of 70 1/2 who has earned income.

The eligibility to purchase an Individual Retirement Account (IRA) primarily depends on having earned income, which is income derived from working, such as wages, salaries, and self-employment income. This is crucial because IRAs are designed to encourage saving for retirement, and earned income is the basis for contributions to these accounts. The stipulation regarding age—the limit of 70½—was previously important for traditional IRAs as it determined when you had to start taking required minimum distributions (RMDs). Although this age limit is no longer in effect for contributions as of recent changes in the law, having earned income remains essential. Options that mention unearned income or those that focus less explicitly on earned income do not align with the definition of who can legally open and contribute to an IRA. Also, individuals of any age can technically open an IRA as long as they have earned income, but younger individuals may be limited in their contribution limits based on their income, especially minors. Therefore, the requirement that the individual must possess earned income under the age of 70½ captures the essence of IRA eligibility correctly.