Do You Have to Be Employed to Open an IRA?

by Beth Winston

IRAs in their many forms are a popular retirement savings vehicle because of their tax-advantaged status. While IRAs are pretty flexible, they are subject to certain rules. This includes your earning position when you begin the account.


You must be earning money to open an IRA account. The IRS defines earned income as salary, wages, tips, professional fees or bonuses. If your income comes only from something like interest, dividends, an inheritance or capital gains, you cannot contribute this to an IRA.


You do not need to be employed in the sense of working on staff for a company or another person in order to be eligible. You can be self-employed, be an independent contractor or you can run your own business. The qualification depends not on your employment status but entirely on whether you earn income.


The one exception to the earned income rule is nonworking spouses. If you are earning, but your spouse does not work, you may open a traditional or Roth IRA in your spouse's name and contribute your earnings to it. In order to qualify for this, you must file a joint tax return with your spouse.


IRA contributions are subject to limits. At the time of publication, the maximum annual contribution per individual is $5,000, or $6,000 if you are age 50 or older. However, you cannot contribute more than you earned. In the case of a spousal IRA, that means you must have an adjusted gross income of at least $10,000/$12,000 to contribute the maximum to both your and your spouse's IRA.

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