Can I Fund a Roth IRA Based on My Spouse’s Income?

Question from Cma, Can I Fund a Roth IRA Based on My Spouse’s Income?

Answer from AI:

When you’re married and filing jointly, the Internal Revenue Service (IRS) provides certain flexibilities regarding retirement savings, including contributions to Roth Individual Retirement Accounts (IRAs). Understanding these rules can help you make informed decisions about your retirement planning.

Understanding Roth IRA Contribution Rules

A Roth IRA is a type of retirement account that allows for taxed contributions but tax-free withdrawals in retirement, under certain conditions. The eligibility to contribute to a Roth IRA is primarily based on your modified adjusted gross income (MAGI) and your tax-filing status.

Spousal IRA Contributions

For couples who are married and file jointly, the IRS allows a non-working spouse to contribute to their own Roth IRA based on the working spouse’s income. This is often referred to as a “Spousal IRA.” This provision is designed to help non-earning spouses save for retirement, even if they do not have earned income themselves.

Key Points:

• The working spouse must have earned income at least equal to the total IRA contributions made by both spouses.
• For 2023, the maximum contribution for individuals under the age of 50 is $6,500, and for those aged 50 and above, it’s $7,500. These limits are subject to change, so it’s important to check the current IRS guidelines.
• Your combined contributions cannot exceed the earned income reported on your joint tax return.
• Income limits for Roth IRA contributions apply based on your MAGI and filing status. If your joint MAGI is within the allowable range, you can both contribute to your Roth IRAs up to the limit.

Direct Answer to Your Question

Given your situation, where your spouse has earned $20,000 and is eligible but decides not to contribute to their Roth IRA, you are still eligible to contribute to your own Roth IRA based on your spouse’s income. Your spouse’s decision not to contribute to their Roth IRA does not affect your eligibility to contribute to yours.

However, remember:

1. You must be married and file a joint tax return.
2. Your combined Roth IRA contributions cannot exceed the earned income reported on your joint tax return or the annual contribution limit, whichever is lower.
3. Ensure your joint MAGI allows for Roth IRA contributions based on the IRS income limits.

Consulting a Professional

While this information provides a general overview, individual circumstances can vary. It’s often beneficial to consult with a financial advisor or tax professional to understand how these rules apply to your specific situation. They can provide personalized advice based on your financial goals and tax situation.

For more detailed information on Roth IRAs, including contribution limits and eligibility, visit the IRS’s Roth IRA page.

Remember, planning for retirement is a crucial step in your financial journey, and understanding the tools available to you, like Roth IRAs, can help you make the most of your and your spouse’s retirement savings.