Can you open a Roth IRA for your spouse? This question comes up a lot among married couples with just one income. After all, one of the requirements for opening and funding a Roth IRA is earned income, right? And as a general rule, if you don’t have taxable earned income as a result of working, you’re ineligible to make a Roth IRA contribution.
However, most rules have exceptions, and this is one of them. The IRS waives the requirement that an individual generate taxable earned income in the case of married couples who file a joint tax return. Note the emphasis here, don’t assume that just because you’re married you can make a Roth IRA contribution without generating earned income. You need to file a joint tax return, and at least one spouse has to have taxable earned income.
Under this provision, if you’re married, file a joint tax return, and have over $10,000 in modified adjustable gross income, you and your spouse can both contribute the maximum amount of $5,000 to a Roth IRA ($6,000 each if you and your spouse are over 50 and earn $12,000 or more). This is the case even if one spouse generates zero dollars in taxable income.
Roth IRA Contributions When Married
If you’re married and you file a joint tax return, the IRS treats your income exactly as a “joint” tax return implies – as joint income. This means all income generated by the married couple belongs to each partner on an equal basis. There is no “yours” and “mine,” just “ours.”
Because both you and your spouse are joint recipients of your income, both of you can open a Roth IRA and make contributions – even though only one of you may be responsible earning all of the household income. Does this make sense?
If not, imagine the following example. Let’s say you’re a 42 year-old New York City hot dog vendor earning $150,000 per year. You and your spouse have three kids, and your spouse stays at home full-time taking care of the little ones.
As long as you file a joint tax return, both you and your spouse are eligible to contribute a total of $10,000 to two Roth IRAs – $5,000 to a Roth IRA in your name and $5,000 to a Roth IRA in your spouse’s name. Why? Because, in the eyes of the IRS, the two of you (as a married couple) generated the $150,000 in income. So even though you physically earned the $150,000, your spouse is also eligible to make a Roth IRA contribution.
So what are the Roth IRA income limits and maximum annual Roth IRA contribution limits for a non-working spouse?
These limits are no different than the limits for a married couple filing jointly where both spouses generate taxable earned income.
For 2012, you can contribute:
- The maximum allowable contribution if you earn $173,000 or less
- Zero if you earn $183,001 or more
- Some portion of the maximum allowable contribution if you earn between $173,001 and $183,000
Assuming you’re eligible to make the maximum annual contribution, the limits are:
- $5,000 if you’re under age 50
- $6,000 if you’re age 50 or older
If you earn somewhere between $173,001 and $183,000, your Roth IRA contribution limit phases out to zero on a percentage basis. For instance, if the maximum contribution limit for your age is $5,000 and you earn $178,000, your maximum contribution limit is $2,500 (50% of the maximum given your age).
In short, all the normal rules which apply to a married couple filing a joint tax return with both spouses working also apply to a married couple filing a joint tax return with only one spouse working.
Need an example? Let’s say both you and your spouse are 54 years old. You file a joint tax return, citing $165,000 in income. However, your spouse earns the entire $165,000, because you’ve been unemployed for the entire tax year.
In this case, both you and your spouse are eligible to contribute a total of $12,000 to two Roth IRAs – $6,000 to a Roth IRA in your name and $6,000 to a Roth IRA in your spouse’s name. Why? Because your $165,000 income puts you under the $173,000 limit for making the maximum annual Roth IRA contribution, which is $6,000 for someone 50 years old or older.
However, what happens next year when you find gainful employment earning $60,000 per year? Neither one of you is eligible to make a Roth IRA contribution. Why? Because your $225,000 income is well in excess of the $183,000 limit for a married couple filing jointly to make any sort of Roth IRA contribution.
If you’re a married one-income couple, you aren’t limited to one Roth IRA. As long as you file a joint tax return and meet the remaining eligibility requirements, both you and your spouse can make Roth IRA contributions. So take advantage of the rules. Only contributing to one spouse’s Roth IRA when you’re eligible to contribute to two cuts your Roth IRA retirement savings in half!
This was a guest post from Britt Gillette, author of Your Roth IRA, an informational website geared toward helping others manage their self-directed Roth IRAs.