Can you start a roth ira without a job

Not necessarily. You usually need to have earned income from a job sometime during the year to contribute to an IRA for yourself. (Unearned income from pensions, investments or Social Security doesn’t qualify.) However, if you’re married and don’t work but your spouse does, then he or she can contribute to a spousal IRA for you. So stay-at-home parents, retirees with a spouse who is still working, and others who were unemployed for the year but had a spouse who earned an income have a chance to boost tax-advantaged retirement savings.

The working spouse can contribute up to $5,000 to his or her own IRA and up to $5,000 for the nonworking spouse for 2012, as long as the working spouse’s annual income was at least as much as the combined contributions. You can add an extra $1,000 for each spouse who is age 50 or older. You still have until April 15, 2013, to contribute to an IRA for 2012. For 2013, the contribution limit has increased to $5,500 per person, with the catch-up contributions remaining at $1,000 for people age 50 or older.

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The spousal IRA can be either a Roth or a traditional IRA. To qualify for a Roth for 2012, the adjusted gross income on your joint tax return must be less than $183,000 (the amount you can contribute starts to phase out above $173,000). Single filers can contribute to a Roth as long as their income was less than $125,000 (the amount you can contribute starts to phase out above $110,000). The income limits are slightly higher for 2013 contributions –- see my column for details. You can access Roth contributions anytime without taxes or penalties, and you can withdraw earnings tax-free and penalty-free after age 59½ as long as you’ve had a Roth for at least five years.

There are no income limits for contributing to a traditional IRA, but your income must be below certain limits for your contributions to be tax-deductible. Withdrawals (except for any non-deductible contributions) will be taxable. See Fund an IRA, Cut Your Taxes for details.

Keep in mind that kids who have any income from a job can make IRA contributions, too -- even if they just earned a little money from babysitting, mowing lawns or any other part-time job -- as long as their contributions are not more than the amount of money they earned for the year. See Open Low-Minimum Roth IRAs for Kids for details.

For more financial-planning advice, log into our Jump-Start Your Retirement Plan Days on February 7 and February 12. You can get a free one-on-one session with a member of the National Association of Personal Financial Advisors (NAPFA). We’ll be featuring four chat rooms hosted by financial advisers, focusing on taxes and retirement, saving for retirement, income in retirement, and other financial challenges. See Jump-Start Your Retirement Plan Days 2013 for more information and to sign up for the live chats.

When you withdraw money from your Roth IRA account, you first receive your own contributions, then any earnings5. (See examples below.) Your contributions come out tax-free, while earnings will be taxable unless you meet both of these conditions:

• you make the withdrawal at least five years after the first tax year for which you made a Roth IRA contribution, and
• you are at least age 59½, disabled or buying a first home (up to $10,000)6.

Also, after your death, withdrawals of earnings by your beneficiaries that meet the five-year holding period are tax-free.

Unemployment numbers have fallen since spiking to nearly 15% in April 2020. The unemployment rate was 4.8% in September 2021, but millions of people in the U.S. continue to worry about their immediate financial needs even with the decline. The current situation may feel urgent, but retirement is still going to come.

Depending on your situation, you may be wondering whether it’s a good idea to contribute to an individual retirement account (IRA), or whether it’s even an option at this point in time. Here’s what you need to know about opening an IRA, especially if you’re one of the many people in the U.S. on unemployment.

Key Takeaways

• To fund an IRA, you or your spouse must have received earned income during the year.
• Your eligibility is based on your income for the full year, not just right now.
• Prior earned income during the year before you became unemployed may make you eligible.
• Make sure you know the rules and best practices to accomplish your retirement goal without sacrificing your present financial health. 

Who Can Open an IRA? 

IRAs can provide significant tax benefits to people who have earned income (or have a spouse with earned income) during the year.

Earned income is compensation from working. It can include salaries, wages, commissions, self-employment income, taxable alimony and separate maintenance, and nontaxable combat pay. The IRS does not consider unemployment income to be earned income.

You can open an IRA if you’ve earned any of these forms of income during the year in which you’re unemployed, no matter how much. Both you and your spouse can potentially receive a tax deduction on IRA contributions if you’re unemployed, but your spouse is still working.

You aren't eligible to receive an IRA tax deduction if you’re unmarried without any earned income this year, or if you're married but neither of you has received eligible compensation the entire year. This is assuming it is past the tax filing deadline. If before the tax filing deadline, you can consider whether any earned income was received in the prior year.

Note

You can still open an IRA if you’re on unemployment benefits now, but you were working and earning income earlier in the tax year.

Can I Contribute to an IRA While on Unemployment?

The same rules apply if you already have an IRA or you’re thinking of opening one. You—or your spouse, if applicable—must have earned income to make contributions.

For the 2021 and into the 2022 tax years, you may be able to contribute up to the maximum of $6,000 each, or $7,000 if you’re age 50 or older, if you’re on unemployment benefits but your spouse is still working.

Remember that your eligibility is based on income for the full year, not just the present time. You may be limited as to how much you can contribute based on your income, however. For example, you’d likely be limited to $3,500 in contributions for the year if you only earned $3,500 in eligible income for the year.

Why Would I Want To Open an IRA?

There are a few reasons to consider opening an IRA while you're unemployed. An IRA can make it possible to keep up with your retirement savings plan so you don’t fall too far behind, even if your current situation isn't ideal. You may need to save more going forward to make up for lost time if you wait until you're working again.

Note

The sooner you start saving for retirement, the more you’ll benefit from compound interest.

If your previous employer offered a 401(k) plan, rolling it over into an IRA will allow you to continue to make contributions to your retirement savings and give you more control over how you invest your money.

Strategies for Saving While on Unemployment

There are some clear benefits to saving if it's possible for you to set money aside for retirement while you're unemployed. But are retirement savings a priority when you don't have earned income or a job?

It might not be possible to save for retirement if money is so tight that you need to focus on immediate living expenses. It might make more sense to bolster your emergency savings in these situations. But consider whether you could put that money to better use with other financial goals if you do have some room in your budget that you could put toward your retirement.

“If you've already built up your emergency fund, and you have excess money that you really don't need within the next five years, then taking advantage of tax-deferred growth may be smart," certified financial planner Riley Poppy told The Balance. "An IRA truly is intended as a long-term vehicle. However, definitely evaluate your living expenses in the future. Over-investing living expenses can be dangerous for those unemployed.”

Note

The amount of money you’d save by paying off your credit cards could outpace the benefits you’d get from saving for retirement if you have high-interest card debt.

“[Being] overloaded by credit card or bad debt with interest rates [of] 18% to 24% would hurt people more than what they can gain from any investment in any IRA,” Eric Kam, a financial educator, told The Balance.

Some Tips for Saving

Some more tips can help you make your efforts more effective if you’re in a good place to save for retirement through an IRA.

Make Sure You’re Using the Right Account

There are two types of IRAs: traditional and Roth. The distinction is important because of the way they're taxed, according to Colin Day, a financial advisor with St. Louis-based Correct Capital Wealth Management.

The IRS taxes your Roth contributions now rather than later in life when you make withdrawals, unlike with a traditional IRA, for which you can claim tax deductions for contributions in the year you make them. You'd have a Roth-specific advantage if your income were low this year because of a job loss.

“If you’re in a lower tax bracket...funding a Roth IRA could make long-term financial sense, because you’ll probably be in a higher tax bracket in retirement,” Day told The Balance. “Because you won’t pay taxes on a Roth IRA, you get the benefit of funding the account in a low tax bracket and pay no taxes later.”

Budget Your Savings

Following a budget won't just help you understand where your money is going. It will also show you where you can cut back in certain areas and reallocate those funds for financial goals like retirement.

Set Up Automatic Transfers

Consider setting up an automatic monthly transfer to your IRA and treating it like any other expense or bill to ensure that it happens. You may be prone to spending whatever money you have leftover if you’re relying on manual contributions to your IRA.

The Bottom Line

Contributing to an IRA while you’re unemployed may not seem possible. But if your household’s financial situation allows for it, make sure you know the rules and the best practices to accomplish your retirement goal without sacrificing your present financial health. 

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. U.S. Bureau of Labor Statistics. "The Employment Situation."

2. Internal Revenue Service. "Publication 590-A (2019), Contributions to Individual Retirement Arrangements (IRAs)."

3. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."

4. Internal Revenue Service. "Coronavirus-Related Relief for Retirement Plans and IRAs Questions and Answers."

   Can I open a Roth IRA with no income?

   Generally, if you're not earning any income, you can't contribute to either a traditional or a Roth IRA. However, in some cases, married couples filing jointly may be able to make IRA contributions based on the taxable compensation reported on their joint return.

   Can I contribute to an IRA if I have no earned income?

   To contribute to a traditional IRA, you, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. For tax years beginning after 2019, there is no age limit to contribute to a traditional IRA.

   Can I get an IRA without a job?

   While you typically need to have income to open an individual retirement account, there is an exception for married spouses who file their taxes jointly. It's known as a spousal IRA, but it is simply a traditional or Roth IRA in the non-working spouse's name into which both partners can make contributions.

   How much income do you need for a Roth IRA?

   If you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be under $144,000 for tax year 2022 and $153,000 for tax year 2023 to contribute to a Roth IRA, and if you're married and file jointly, your MAGI must be under $214,000 for tax year 2022 and $228,000 for tax year 2023.