retirement

Roth IRA Contribution Rules

To stash cash in an IRA, you need earned income or a working spouse.

I retired a few months ago, but my wife continues to work. Can I still contribute to a Roth IRA? What’s the deadline for 2010 contributions?

In general, you need earned income from a job to contribute to an IRA. Pensions and other forms of retirement income, such as Social Security benefits, don’t count. But you can still contribute to an IRA for 2010 based on your own earnings earlier in the year, before you retired, assuming you earned at least as much as your contribution, or to a spousal IRA based on your wife’s earnings.

In 2010, workers and their non-working spouses can each contribute up to $5,000 to a traditional IRA or a Roth IRA ($6,000 if you’re 50 or older). Spousal IRAs can benefit non-working spouses in a variety of situations, whether they’re retired, a stay-at-home parent, or temporarily unemployed. You have until April 15, 2011, to make your 2010 contribution.

You can choose between contributing to a traditional IRA, which offers an upfront tax deduction in many cases, or a Roth IRA, which doesn’t but provides tax-free withdrawals in retirement. (Traditional IRA withdrawals are taxed at your ordinary income-tax rate).

For 2010, you can deduct the maximum contribution to a traditional IRA, even if you participated in an employer plan at any time during the year, as long as your joint income doesn’t exceed $89,000. If you are not covered by an employer-sponsored retirement plan but your spouse is, you can still deduct the maximum IRA contribution if your joint income doesn’t top $167,000 in 2010. Individuals who are covered by an employer-provided retirement plan can deduct the maximum contribution to a traditional IRA if their income is $66,000 or less in 2010 (there is no income limit for individuals who are not covered by another retirement plan).

To be eligible to contribute the maximum $5,000 (or $6,000 if you are 50 or older) to a Roth IRA for 2010, your joint income can’t exceed $167,000 ($105,000 if you are single).

The contribution levels for both traditional and Roth IRAs will remain the same for 2011, but in some cases, income-eligibility limits will increase slightly to reflect inflation. See Get the Most Out of Your Retirement Accounts for more information about the 2011 contribution and income limits.

Finally, you must be under age 70½ to contribute to a traditional IRA, but there’s no age limit for contributing to a Roth. For more information about Roth IRAs, see Why You Need a Roth IRA.

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