:max_bytes(150000):strip_icc()/GettyImages-699337164-04abf644d46c406884a39d3b6d5c2fb8.jpg "Do I Need Earned Income for Roth IRA Contributions? (1)")
Roth individual retirement accounts (IRAs) are more flexible than other retirement accounts in many respects, including early withdrawals. But contributing to one does require that you earn income.
Many people open Roth accounts for their unique tax advantages. A Roth IRA is funded with after-tax dollars, unlike a traditional IRA. Its 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. There's a sliding scale for how much you can invest based on your modified adjusted gross income (MAGI). We’ll also review an option for spouses who don't have earned income but want to contribute to Roth IRAs.
Key Takeaways
- You must have earned income to qualify to contribute to a Roth IRA.
- Individuals who qualify to make maximum contributions to Roth IRAs can contribute up to $6,500 in the 2023 tax year, or $7,500 if they're age 50 or older.
- Earned income can include taxable alimony or other spousal maintenance, nontaxable combat pay, and some taxable non-tuition payments.
- A spousal Roth IRA allows a working spouse to contribute for a non-working spouse as long as the couple files a joint tax return.
Roth IRAs Require Earned Income
You must have earned taxable compensation to contribute to a Roth IRA, just as with a traditional IRA.
There are no age restrictions on when you can contribute to either type of IRA as of 2023. You can contribute funds to a Roth if you're a teenager who earns taxable income or if you're a 75-year-old who still earns and reports taxable income. As long as you have taxable income within the Internal Revenue Service (IRS) limits, you are eligible to contribute, with one exception. Your spouse can contribute the maximum allowable limit for you if you don't personally earn any income.
Note
The IRS does have a cap on modified adjusted gross incomes (MAGIs) in order to qualify to contribute to a Roth IRA. You may not be able to contribute the maximum contribution amount if your earnings are above a certain threshold, or you may not be eligible to contribute at all if you earn more than the top MAGI limit.
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 sources that can be used to fund a Roth IRA include:
- Taxable alimony or other maintenance received under a divorce decree
- Nontaxable combat pay
- Certain taxable non-tuition and stipend payments
Compensation doesn't include earnings from rental property or other real estate holdings. It doesn't include pension or annuity income, deferred compensation, or income from a partnership in which you don't provide income-producing services.
Roth IRA Contribution Limits
There are no income limits for eligibility to contribute to a traditional IRA, but the amount that can be contributed to a Roth IRA is reduced when your MAGI reaches certain levels. Eligibility is completely phased out above a certain limit.
The IRS occasionally adjusts the modified AGI limits and the contribution limits to keep pace with inflation. This table provides a summary of Roth IRA eligibility and contribution limits for tax year 2023 according to your tax filing status.
| Filing Status | 2023 Modified Adjusted Gross Income (AGI) | 2023 Contribution Limits |
|---|---|---|
| Single, head of household, married filing separately (and did not live with spouse at any time during the year) | Less than $138,000 | $6,500 ($7,500 if age 50 or older) or your AGI, whichever is less |
| At least $138,000 but less than $153,000 | Reduced contribution limit | |
| $153,000 or more | Ineligible to contribute | |
| Married filing separately and lived with spouse at any time during the tax year | Less than $10,000 | Reduced contribution limit |
| $10,000 or more | Ineligible to contribute | |
| Married filing jointly or qualified widow(er) | Less than $218,000 | $6,000 ($7,000 if age 50 or older) or you AGI, whichever is less |
| At least $218,000, but less than $228,000 | Reduced contribution limit | |
| $228,000 or more | Ineligible to contribute |
Those who are ineligible to contribute to a Roth IRA have other options for getting tax advantages from retirement accounts. These include traditional IRAs or employer-sponsored retirement savings plans such as a 401(k)s.
Taxpayers who earn money from self-employment or side jobs can set up a simplified employee pension IRA (SEP-IRA) even if they also work for an employer and participate in a 401(k) program.
Note
Consider a strategy known as a “backdoor Roth IRA" if your income exceeds the limit to contribute to a Roth but you want the tax advantages it offers. This involves contributing funds to a traditional IRA then converting those funds to a Roth IRA.
You must pay the taxes on the pretax funds that are converted to a backdoor Roth IRA, but the funds then grow tax free and you'll receive the 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
There's an exception to the rule requiring that you have earned income to contribute to an IRA for married couples who file their taxes jointly. A spousal Roth IRA allows a working spouse to fund a Roth IRA for their non-working spouse.
The working spouse can contribute the maximum amount allowed for themself as well as the maximum amount allowed for their spouse. A married couple who qualifies under the income limit guidelines can contribute up to $13,000 annually as of 2023 ($6,500 for each person) or $15,000 if they're age 50 or older and 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 they aren't subject to required minimum distributions at age 72.
Can You Contribute to a Roth IRA?
You can contribute the lesser of $6,500 (or $7,500 if you’re age 50 or older) or the total amount you earned for the year, whichever is less, if you have earned income for the current tax year that doesn't exceed the income limits.
The IRS provides a worksheet to help determine how much they can contribute to a Roth IRA for those whose earnings exceed the limits for a maximum contribution.
Frequently Asked Questions (FAQs)
Can I convert part of my IRA to a Roth IRA if I have no earned income?
You can convert all or part of a traditional IRA to a Roth, regardless of income. You'll owe taxes on the amount of money that's converted from a traditional IRA. Consider consulting with a tax professional before converting funds.
Does it matter when I earned the income?
You must have earned income for the same tax year as your contribution to a Roth IRA. You can contribute for a specific tax year up through the deadline for filing taxes for that year, which is typically mid-April on Tax Day of the following year.
What happens if I contribute to a Roth IRA without earned income?
It's considered an excess contribution, and the IRS will assess a 6% penalty each year until the amount is corrected. The excess can be withdrawn or assigned to the next tax year if you've already filed your tax return for the year. Keep in mind that a spousal Roth IRA allows a working spouse to contribute to a Roth for a non-working spouse as long as all other eligibility requirements are met.
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Correction February 21, 2023: This article has been updated to correct the earned income requirement and age limits for contribution for traditional and Roth IRAs.
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