Can a Person Invest in a Roth IRA When Not Employed?

by Maggie McCormick, studioD

You may want to contribute to your Roth IRA from savings or other sources of income even though you are unemployed. According to the Internal Revenue Service, you can only make IRA contributions if you or a spouse have earned income. In certain cases, you can still contribute even if you are not employed by a particular company.

Earned Income

The IRS states that you must fund your Roth IRA with earned income, but this doesn't necessarily have to be from a regular source. For example, if you do freelance contract work or work for a temporary agency, you are earning money without being directly employed. In this case, you could still contribute to your Roth IRA. Alimony, commission-based payments and non-taxable combat pay are also included as eligible sources of earned income. In order to count, though, you must disclose these earnings on your tax statement.

Excluded Income Sources

Pensions, Social Security, welfare and unemployment payments do not count as earned income. You also cannot include rental income, capital gains from investments, business partnership income that you earn without actively working for the company and foreign earned income that you don't pay U.S. taxes on.

Contribution Limits

The contribution limit for a Roth IRA is $5,000 for anyone under age 50 and $6,000 for those 50 and older as of 2011. However, if you earn less than this amount, you can only contribute up to the amount of money you earned.

Working Spouse

The rules change when you have a working spouse. As long as you file a joint tax return that shows that your spouse had earned income, you can fully or partially fund Roth IRAs in each of your names.

About the Author

Maggie McCormick is a freelance writer. She lived in Japan for three years teaching preschool to young children and currently lives in Honolulu with her family. She received a B.A. in women's studies from Wellesley College.