The tax authorities get a little grumpy if you contribute to a Roth IRA without what it calls earned income. This usually means you need a paid job — either working for someone else or your own business — to make contributions to a Roth IRA. But what if you don’t have one — a job, that is — and still want a Roth?
Even if you don’t have a conventional job, you may be able to contribute to a Roth IRA.
Key findings
- You can contribute to a Roth IRA if you have earned income and meet the income limits.
- Even if you don’t have a conventional job, you may have income that qualifies as “earned.”
- Spouses without income can also contribute to a Roth IRA using the other spouse’s earned income.
The good news
While it’s not true in all cases, if you pay taxes on any type of income from work, then there’s a good chance you’ll be contributing to a Roth IRA. Although earned income usually includes wages, salaries, tips, bonusescommissions and self employment income, it also includes some types of income that you might not immediately think of as “earned.”
Here are some examples of ways you can fund a Roth without having a traditional job or steady paycheck.
If you exercised stock options
When you exercise non-qualified stock options, you will likely pay income taxes on the difference between the grant price and the price at which you exercised the options. You can contribute this taxable income to a Roth IRA.
If you have been awarded a scholarship or bursary
Some scholarships and bursaries are taxable— especially those that pay for room and board, teaching or research, or that include a living stipend. What matters is that you pay income taxes on these funds. IRS Publication 970: Education Tax Credits covers this in detail. When you pay those taxes, you can usually use that income to justify a Roth IRA contribution.
If your spouse has earned income
If your spouse earns income but you don’t, the IRS allows you to have your own IRA and use family funds to make your annual contributions. Often called a husband IRA, these accounts act just like a normal Roth IRA does. The only difference is that your spouse’s income, not your own, determines whether you qualify for a Roth IRA based on maximum income limits.
Families often use spousal IRAs to double the amount they can contribute to an IRA each year. For the 2022 tax year, you can contribute up to $6,000 per person. If you’re 50 or older, the limit is $7,000. That means couples can collectively contribute $12,000 to $14,000, depending on whether one or both are eligible for catch-up installments.
These amounts increase in 2023 to account for inflation. So for 2023 you can contribute up to $6,500 per person, and the limit is $7,500 if you’re 50 or older, meaning couples can collectively contribute $13,000 to $15,000 depending on catch-up eligibility installments.
Additionally, to qualify for a spousal IRA, you must file taxes as married filing jointly. If the spouse without income later returns to work, he or she can still contribute to the spouse’s existing IRA. Once the account is set up, it’s an IRA just like any other.
If you receive tax-free combat pay
You don’t have to pay taxes to contribute to a Roth IRA. For example, if you receive tax-free combat paywhich is reported in cell 12 of item Form W-2then you are eligible.
You have until next year’s filing deadline to contribute to an IRA. In 2023, you have until April 18 in most states to make a contribution for the 2022 tax year.
Can a stay-at-home parent have a Roth IRA?
A stay-at-home parent with no income of their own can still have a Roth IRA. This so-called spousal IRA is just like any other Roth IRA, except that your spouse’s income determines whether you qualify for a Roth IRA based on the maximum income limits.
In 2022, if your tax filing status is married filing a joint tax return, then you can contribute the full amount ($6,000 or $7,000 if you’re 50 or older). In 2023, if your tax filing status is married filing a joint return, you can still contribute the full amount ($6,500 or $7,500 if you’re 50 or older).
What is considered earned income?
Earned income includes wages, salary, commissions, tips, bonuses, self-employment income, taxable wages, stipend payments, and tax-free combat pay. Taxable alimony and separate alimony payments for divorce or separation that were made on or before December 31, 2018 are also considered earned income by the IRS.
What is not considered earned income?
Different types of income are not considered earned income for purposes of contributing to a Roth IRA. These include interest and dividends, pensions or annuities, and social security or unemployment benefits.
The bottom row
Even if you don’t have a conventional job, you may be able to contribute to a Roth IRA with income from non-traditional sources—if you don’t earn more than the income limits imposed by the IRS. As with all tax-related matters, individual situations can sometimes make a big difference, so it may be a good idea to consult a tax professional before making any contributions.