My husband and I are retired, but we both receive pensions, and I earned some money last year selling my artwork. Can we make Roth IRA contributions for 2015?
You need to have earned income from a job to qualify to make IRA contributions. So your pension income doesn't count, but your art-sale income does. If you earned enough money, you could contribute to your own Roth IRA as well as make spousal contributions to your husband’s account. However, you cannot contribute more than your earned income for the year.
Because you are self-employed, your maximum contribution is based on the net earnings from your business (self-employment income minus the deductible part of your self-employment taxes).
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If your net self-employment income is $13,000 or more, you can make the maximum $6,500 contribution to your Roth IRA and contribute $6,500 to your husband’s spousal IRA (which includes $1,000 in catch-up contributions if you’re age 50 or older). Otherwise, your IRA contributions (plus spousal IRA contributions) are limited to your net self-employment income.
You can contribute to a Roth at any age (the age cutoff for a traditional IRA is 70½). It sounds like you'll have no trouble with the top end of the Roth requirements. Your modified adjusted gross income in 2015 must be less than $193,000 for married couples (or $131,000 for single filers) in order to make Roth contributions.
Because you're self-employed, you may also be able to make contributions to a Simplified Employee Pension (or to a solo 401(k), if you already have an account opened). Those contribution limits are also based on your income -- see How Self-Employed Workers Can Save for Retirement for more information about the calculations, and IRS Publication 560 Retirement Plans for Small Business for details.
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FAQs
Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA plan). See the discussion of IRA Contribution Limits.
Can I contribute to a Roth IRA if I am retired? ›
You can keep contributing to a Roth IRA after retirement, as long as you have some earned income. Roth IRA contributions aren't tax-deductible on an up-front basis.
What happens if I contribute to Roth IRA without earned income? ›
The IRS gets a little grumpy if you contribute to a 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.
Can I contribute to a Roth IRA even if I'm not working? ›
Do you have to be employed to open a Roth IRA? You can open and contribute to a Roth IRA regardless of your employment status (full-time, part-time, or not working) so long as your contributions are equal to or below your earned income.
Does a pension count as earned income? ›
Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits. For tax years after 2003, members of the military who receive excludable combat zone compensation may elect to include it in earned income.
Can I contribute full $6,000 to IRA if I have a 401k? ›
If you participate in an employer's retirement plan, such as a 401(k), and your adjusted gross income (AGI) is equal to or less than the number in the first column for your tax filing status, you are able to make and deduct a traditional IRA contribution up to the maximum of $7,000, or $8,000 if you're 50 or older, in ...
At what age does a Roth IRA not make sense? ›
Are You Too Old for a Roth IRA? There is no maximum age limit to contribute to a Roth IRA, so you can add funds after creating the account if you meet the qualifications. Roth IRAs can provide significant tax benefits to young people.
When can you no longer contribute to a Roth IRA income? ›
With a traditional IRA, you must stop making contributions at age 73. Roth IRAs come with no such rule. In turn, you can continue contributing to it for as long as you live, making them valuable assets for those who want to build up wealth to transfer to their heirs.
Can I contribute to a Roth IRA if my income is too high? ›
If your income is too high, you won't be able to contribute to a Roth IRA directly, but you do have an option to get around the Roth IRA income limit: a backdoor Roth IRA. This involves putting money in a traditional IRA and then converting the account to a Roth IRA.
How does the IRS know if you over contribute to a Roth IRA? ›
The IRS requires the 1099-R for excess contributions to be created in the year the excess contribution is removed the from your traditional or Roth IRA. Box 7 of the 1099-R will report whether you removed a contribution that was deposited in the current or prior year for timely return of excess requests.
A backdoor Roth IRA is a conversion that allows high earners to open a Roth IRA despite IRS-imposed income limits. Basically, you put money you've already paid taxes on in a traditional IRA, then convert your contributed money into a Roth IRA, and you're done.
What is considered income for Roth IRA contributions? ›
Income: To contribute to a Roth IRA, you must have compensation (i.e. wages, salary, tips, professional fees, bonuses). Your modified adjusted gross income must be less than: $160,000 - Married filing jointly.
Can I contribute to a Roth IRA with pension income? ›
Compensation for purposes of contributing to an IRA doesn't include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation.
Can you contribute to a Roth IRA if you're retired? ›
IRA contributions after age 70½
For 2019, if you're 70 ½ or older, you can't make a regular contribution to a traditional IRA. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.
Should a retired person open a Roth IRA? ›
Even when you're close to retirement or already in retirement, opening this special retirement savings vehicle can still make sense under some circ*mstances. There is no age limit to open a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one.
What happens if you contribute to Roth IRA over the income limit? ›
You'll face a 6% tax penalty every year until you remedy the situation.
Can I have both a traditional and Roth IRA? ›
Fact: If you're eligible, you can contribute to different types of IRAs. Contributing to a Roth IRA and a traditional IRA is absolutely allowed as long as you're eligible.
Who Cannot contribute to Roth 401k? ›
Unlike a traditional Roth IRA, there are no income limits for a Roth 401(k), so these accounts are available to everyone (depending on if your employer offers one), regardless of how much money someone earns.
