Generally, if you don't earn any income, you can't contribute to either a traditional IRA or a Roth IRA. However, in some cases, married couples who file a joint return can make contributions to the IRA based on the taxable compensation stated in their joint return. So, you can fund a Roth IRA if you're a teenager earning taxable income or if you're 75 and still earning taxable income and reporting it. As long as you have taxable income within the limits of the IRS, you have the right to contribute with an exception.
If you are a spouse with no income, your spouse can contribute up to the maximum allowable limit for you. A couple must file a joint tax return for the spousal IRA to work, and the contributing partner must have sufficient earned income from work to cover both contributions. The five-year Roth IRA rule states that you can't withdraw your earnings tax-free until at least five years after you've first contributed to a Roth IRA. While there are no income limits to be able to contribute to a traditional IRA, the amount that can be contributed to a Roth IRA decreases when the AGI reaches certain levels and eligibility is completely eliminated above a certain income.
The IRS generally announces the amounts and limits of IRA contributions and your eligibility for the next tax year, around the fourth quarter (Q) of the previous tax year. People who earn money by self-employment or with side jobs can create a simplified employee pension IRA (SEP-IRA), even if they also work for an employer and participate in a 401 (k) program. Converting to a Roth IRA from a taxable retirement account, such as a 401 (k) plan or a traditional IRA, has no impact on the contribution limit; however, making a conversion increases the MAGI and may cause or increase the phasing out of the Roth IRA contribution amount. If your spouse earns income but you don't, the IRS allows you to have your own IRA and use family funds to make your annual contributions.
All deductible contributions and profits you withdraw or that are distributed from your traditional IRA are taxable. Previously, if you converted another tax-advantaged account (Simplified Employee Pension IRA (SEP), Supplemental Employee Savings Incentive Plan (SIMPLE), Traditional IRA, 401 (k) Plan or 403 (b) Plan)) into a Roth IRA and then changed your mind, you could cancel it in the form of a requalification. You may be able to get around income limits by converting a traditional IRA to a Roth IRA, which is called a clandestine Roth IRA. Learn more about the requirements to contribute to a Roth IRA, including the adjusted gross income limit and the maximum that can be invested annually, and about the sliding scale to determine how much you can invest based on adjusted gross income (AGI).
Under certain conditions, Roth IRAs also allow tax-free earnings to be withdrawn, which are subject to taxation in a traditional IRA. Every year you make a contribution to the Roth IRA, the custodian or trustee will send you Form 5498 with information about IRA contributions. This so-called spousal IRA is just like any other Roth IRA, except that it's your spouse's income that determines whether you qualify for a Roth IRA based on maximum income limits. So, if you have the money and meet income limits, you can contribute to a 401 (k) plan at work and then contribute to your own Roth IRA.