Roth IRA Contributions With No Job?

Yes, it’s possible. Here’s how

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The Internal Revenue Service (IRS) gets a little grumpy if you contribute to a Roth individual retirement account (Roth IRA) without what it calls earned income. That usually means that you need a paying job—working for either someone else or your own business—to make Roth IRA contributions. But what if you don’t have one—a job, that is—and you still want a Roth?

Key Takeaways

  • 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 with no income can also contribute to Roth IRAs, using the other spouse’s earned income.

The Good News

You don’t necessarily need a formal job to contribute to a Roth IRA. Although it’s not true in all cases, if you’re paying taxes on any type of income from working, then there’s a good chance that you can make Roth IRA contributions. Although earned income typically includes wages, salaries, tips, bonuses, commissions, and self-employment income, it also includes some kinds of income that you might not immediately think of as “earned.”

You may contribute to a Roth IRA even if you don’t have a formal job.

Here are some examples of ways that you might fund a Roth without having a formal job or steady pay.

If You Exercised Stock Options

When you exercise non-qualified stock options, you’ll probably pay income taxes on the difference between the grant price and the price at which you exercised the options. You may contribute this taxable income to Roth IRAs.

If You’re Awarded a Scholarship or Fellowship

Some scholarships and fellowships are taxable—especially those that pay for room and board, teaching, or research, or that include a stipend for living expenses. IRS Publication 970: Tax Benefits for Education covers this in detail. But what’s important is that you’re paying income taxes on these funds. When you do so, 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 an IRA of your own and use family funds to make your annual contributions. Often called a spousal IRA, these accounts act just like a normal Roth IRA. The only difference is that your spouse’s income, rather than your own, is used to determine whether you qualify for a Roth IRA based on the maximum income limits.

If you’re eligible for a spousal IRA, then you may be able to double your family’s annual Roth IRA contributions.

Families often use the spousal IRA to double the amount that they can contribute to IRAs each year. For tax years 2021 and 2022, you can contribute up to $6,000 per person. If you’re age 50 or older, the limit is $7,000.

That means couples can collectively contribute $12,000 to $14,000, depending on whether either or both are eligible for the catch-up contributions.

Also, you must file your taxes as married filing jointly. If the no-income spouse later goes back to work, they can still contribute to their existing spousal IRA. Once the account is set up, it’s an IRA just like any other.

If You Receive Nontaxable Combat Pay

You don’t necessarily need to pay taxes to contribute to a Roth IRA. For instance, if you receive nontaxable combat pay, which is reported in box 12 of your Form W-2, then you’re eligible.

Consult a Tax Professional

Although IRAs are generally reserved for people earning a traditional income, there are some cases in which no income doesn’t necessarily mean no IRA. As with any tax-related questions, individual situations can sometimes make a big difference. Therefore, it’s best to check with a tax expert before making contributions.

FAQs

If you’re a stay-at-home mom or dad, can you still have a Roth IRA?

A stay-at-home parent who has 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 is used to determine whether you qualify for a Roth IRA based on the maximum income limits.

In 2021, if your tax filing status is married filing jointly, then you can contribute the full amount ($6,000, or $7,000 if you’re age 50 or older) if your modified adjusted gross income (MAGI) is less than $198,000, a reduced amount if you make $198,000 to $208,000, or nothing at all if your income is over $208,000.

In 2022, if your tax filing status is married filing jointly, you can still contribute the full amount ($6,000, or $7,000 if you’re age 50 or older) if your modified adjusted gross income (MAGI) is less than $204,000, a reduced amount if you make $204,000 to $214,000, or nothing at all if your income is over $214,000.

What does the IRS generally consider earned income?

According to the IRS, earned income includes wages, salary, commissions, tips, bonuses, self-employment income, taxable non-tuition, and stipend payments, nontaxable combat pay, and taxable alimony and separate maintenance payments for divorce or separation decrees that were executed on or before Dec. 31, 2018, and weren’t modified to exclude them.

What is not considered earned income by the IRS?

Various types of income are not considered earned income for the purposes of contributing to a Roth IRA. These include:

  • Interest and dividends
  • Pensions or annuities
  • Social Security
  • Unemployment benefits
  • Alimony
  • Child support
  • Pay for work as an inmate in a penal institution

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  1. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits." Accessed Dec. 13, 2021.

  2. Internal Revenue Service. “Publication 590-A (2020), Contributions to Individual Retirement Arrangements (IRAs).” Accessed Dec. 13, 2021.

  3. Internal Revenue Service. “Publication 970, Tax Benefits for Education." Accessed Dec. 13, 2021.

  4. Internal Revenue Service. "IRS Announces 401(k) Limit Increases to $20,500." Accessed Dec. 13, 2021.

  5. Internal Revenue Service. “Income Ranges for Determining IRA Eligibility Change for 2021.” Accessed Dec. 13, 2021.

  6. Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make for 2022." Accessed Dec. 13, 2021.

  7. Internal Revenue Service. “Earned Income and Earned Income Tax Credit (EITC) Tables.” Accessed Dec. 13, 2021.