Can I Have a Roth IRA Without Having a Job?
An IRA is a retirement account that receives favorable tax treatment by the Internal Revenue Service (IRS). There are two main types of IRA accounts: traditional and Roth. The IRS has requirements for each type of account. One of the requirements to set up a Roth IRA, for example, is that the funds for your IRA have to come from earned income. You must have a job, or be self-employed, to start a Roth IRA.
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IRA Tax Treatment
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Roth IRAs are taxed when you deposit money into the account. With a traditional IRA, you can deduct the money you put into the IRA on your income taxes that year. You pay taxes when you withdraw the money at retirement. With a Roth IRA, you don't deduct the money on your income taxes, and when you take money out of the account at retirement, you don't owe any taxes.
Roth Guidelines
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You must use earned income to start a Roth IRA. Earned income is any type of income you work to receive. Social Security and retirement pensions are examples of unearned income. If you have both earned and unearned income, you must have enough earned income to cover the amount you're depositing in your IRA for that year. For example, if the maximum Roth IRA contribution is $4,000 in a given tax year, and you had $2,000 of earned income over that tax year, the maximum you can deposit into a Roth IRA is $2,000.
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Job Status
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If you open a Roth IRA, then lose your job, you can keep your Roth IRA. You can have a Roth IRA without having a job, as long as you started the Roth during a year when you earned income. If you worked from January to March, for example, you could start a Roth IRA in November of the same year. You can contribute to an IRA for a given year until that year's tax returns are due. For example, if you worked from January to March of 2008, you would have until April 15, 2009 to make an IRA contribution.
Other Considerations
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You can withdraw your Roth IRA contributions at any time without a penalty, regardless of your job status. There is no requirement to withdraw funds from a Roth IRA, though. You can contribute up to a maximum set by the IRS; in 2010, the maximum contribution was $5,000 if your income was $105,000 if single or $166,000 if married. You can also convert a traditional IRA to a Roth IRA if your adjusted gross income is $100,000 or less. You pay taxes on your IRA's earnings the tax year you convert the IRA.
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