Many people open Roths for the accounts’ unique tax advantages. Unlike a traditional IRA, a Roth IRA is funded with after-tax dollars. Those earnings then grow tax-free for distributions during your retirement years. Learn more about the requirements to contribute to a Roth IRA, including the cap on adjusted gross income and the maximum that can be invested annually, and about the sliding scale for how much can be invested based on adjusted gross income (AGI). We’ll also review an option for spouses who do not have earned income but still want to contribute to Roth IRAs.
Roth IRAs Require Earned Income
Just like with a traditional IRA, you must have earned taxable compensation to contribute to a Roth IRA, and as of 2020, there are no age restrictions on when you can contribute to either type of IRA. So you can contribute funds to a Roth IRA if you are a teenager who earns taxable income or if you are a 75-year-old who still earns and reports taxable income. As long as you have taxable income within the IRS limits, you are eligible to contribute—with one exception. If you are a spouse who earns no income, your spouse can contribute the maximum allowable limit for you.
What Counts as Earned Income?
The most common forms of earned income are compensation earned from working for an employer or net earnings made by someone who is self-employed. Other income that can be used to fund a Roth IRA include:
Taxable alimony or other maintenance received under a divorce decreeNontaxable combat payCertain taxable non-tuition and stipend payments
Compensation does not include earnings from rental property or other real estate holdings, pension or annuity income, deferred compensation, or income from a partnership in which you do not provide income-producing services.
Roth IRA Contribution Limits
While there are no income limits for eligibility to contribute to a traditional IRA, the amount that can be contributed to a Roth IRA is reduced when your AGI reaches certain levels, and eligibility is completely phased out above a certain income. The modified AGI limits and the contribution limits are sometimes adjusted for inflation by the IRS. The table below provides a summary of Roth IRA eligibility and contribution limits for 2022 according to your tax filing status. With a backdoor Roth IRA, you’ll have to pay the taxes on the pretax funds that are converted, but the funds then get the tax-free growth and tax-free distribution advantages that the Roth account provides. There are no required minimum distributions after traditional IRA funds are converted to Roth IRA funds.
An Exception: The Spousal Roth IRA
For married couples who file taxes jointly, there is an exception to the rule requiring you have earned income to contribute to an IRA. A spousal Roth IRA allows a working spouse to fund a Roth IRA for a non-working spouse. The working spouse can contribute the maximum amount allowed for themselves as well as the maximum amount allowed for their spouse. This means a married couple that qualifies under the income limit guidelines can contribute up to $12,000 annually ($6,000 for each person) or $14,000 if they are over 50 years old if they have that amount in earned income. Andrew Crowell, vice chairman of wealth management at D.A. Davidson, a brokerage firm, told The Balance in a phone interview that spousal Roth IRAs and the backdoor Roth strategy are widely used by the firm’s clients. Conversions are also popular, Crowell said, because Roth accounts provide tax-free distributions and have no minimum required distributions at age 70½.
Can You Contribute to a Roth IRA?
If you have earned income for the current tax year that does not exceed the income limits previously mentioned, you can contribute the lesser of $6,000 ($7,000 if you’re over age 50) or the total amount that you earned. For those whose earnings exceed the limits for a maximum contribution, the IRS provides a worksheet to help determine how much they can contribute to a Roth IRA. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning! Correction - Aug. 9, 2022: This article has been updated to correct the earned income requirement and age limits for contribution for traditional and Roth IRAs.
