Do You Have to Work to Contribute to a Roth IRA?

For the most part, you need to work for the money that goes into a Roth.

For the most part, you need to work for the money that goes into a Roth.

Working isn't always a laugh riot. But, with one exception, to be eligible to put money in a Roth or any other IRA you have to have earned income. After all, Congress created individual retirement arrangements to encourage working Americans to save for retirement. Though it might sound cool to put investment or unemployment income in an IRA, it is against the law.

Earned Income Defined

The IRS defines earned income to include wages, salaries, tips, commissions and nontaxable combat pay. It also includes alimony and separate maintenance payments as earned income. You cannot use investment, rental, pension or annuity income to fund an IRA. Foreign earned income is also excluded.

Contribution Limits

As of 2012, you can put no more than $5,000 per year in an IRA. The limit for accountholders 50 and over is $6,000. When it comes to the limit, the IRS sees all IRAs as one IRA. For example, if you have two Roth accounts and one traditional IRA, you can contribute $3,000 to one account and $1,000 to each of the other two. You cannot put $5,000 in each account. If you make excess contributions to an IRA, the IRS slaps you with a 6 percent penalty tax for each year the excess money remains in the account.

No Age Restrictions

You can open a Roth IRA at any age. Moreover, you can keep putting money in a Roth until the day you die as long as you have earned income. So if you retire from your full-time job but continue to work as a consultant or otherwise earn income, you can keep adding to the account. What's more, you never have to take a distribution.

Children and Roths

No lower age limits exist to open and fund a Roth. As long as your child has earned income, she can start saving for retirement. Only a parent or guardian can open a Roth for a minor child. But even if the child actually spends the money she earned, you can still contribute to the account. Just be sure to put in no more than the sum of her earnings. Keeping careful records of your child's earnings, then, is especially important. If you employ the child in your own business, provide her a Form W-2 like any other employee. Otherwise, document cash payments, keep copies and stubs of paychecks and track any Forms 1099 from non-employee work.

Spousal IRA

The only individual who can contribute to a traditional or Roth IRA without any earnings is the spouse of an IRA owner who files a joint return. If you do not work, but your spouse works and contributes to his own IRA, the IRS allows your spouse to open an IRA for you. You can contribute to the spousal Roth IRA the difference between the working spouse's adjusted gross income and his IRA contribution for the year, or the yearly limit, whichever is smaller. Put another way, if the working spouse's AGI equals twice the IRA yearly contribution limit, both you and your spouse can contribute the IRA maximum. Note that as of 2012, for married couples filing jointly, Roth IRA eligibility phases out at AGI of $183,000.


About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.

Photo Credits

  • Creatas/Creatas/Getty Images