ASK KIM


Earned Income Required for a Roth

Kimberly Lankford

You can open Roth at any age as long as you have wages from a job -- investment and pension income don't count.



Can I as a retiree contribute to a Roth IRA? My only source of income is from my federal pension and investments. And if I can contribute to a Roth, should I?

You can contribute to a Roth IRA only if you have earned income from a job, so it looks like you don't qualify. One exception would be if you have a spouse who still works. In that case, she can contribute to a spousal IRA on your behalf as long as she earns more than she contributes to accounts for each of you, and you file a joint return. The maximum contribution in 2007 is $4,000 per person ($5,000 if you're 50 or older).

If you or your spouse do have earned income, you can contribute to a Roth at any age (unlike a traditional IRA, which prohibits contributions starting in the year you turn age 70½). To qualify for a Roth IRA in 2007, the adjusted gross income on your joint return must be less than $166,000 ($114,000 for singles). And the amount you can contribute starts to phase out at $156,000 ($99,000 for singles).

You can benefit from contributing to a Roth even if you're well into your senior years. You can withdraw your contributions at any time, and your earnings are tax-free after age 59½, as long as you've had a Roth for at least five years (actually, it can be less than five years -- the five-year holding period begins on January 1 of the year for which you made your first Roth contribution, even if you made it by the tax-filing deadline the following April). If you die with a Roth, your heirs inherit the money income-tax free.

If you or your spouse had any earned income last year, you still have until April 17 to open a Roth IRA for 2006. And you can contribute to a 2007 IRA anytime now, too.

Got a question? Ask Kim at askkim@kiplinger.com.




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