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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 355
Experience:  Former IRS Revenue Agent
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Do you have to have earned income of 5,500 to make the

Customer Question

Do you have to have earned income of 5,500 to make the maximum contribution to a Roth IRA if under age 50?
Submitted: 3 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Customer,

In general, yes. Both Roth and regular IRA are linked to income earned. However, a spouse may be qualified for Roth IRA contribution, or even regular IRA, based on the other spouse, husband's or wife's, earnings. Please see the end of this posting.

Roth IRAs and traditional IRAs. If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit.

This means that your contribution limit is the lesser of:

  • $5,500 ($6,500 if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or

  • Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.

https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2016

https://www.irs.gov/publications/p590a/ch02.html#en_US_2015_publink1000230988

Kay Bailey Hutchison Spousal IRA. In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of:

  1. $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older), or

  2. The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts.

    1. The IRA deduction for the year of the spouse with the greater compensation.

    2. Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation.

    3. Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation.

This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation.

https://www.irs.gov/publications/p590a/ch01.html#en_US_2015_publink1000230444

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

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