Can You Open an IRA Without a Job?

You can open an Individual Retirement Arrangement (IRA) even if you do not have a traditional job. The ability to contribute to an IRA primarily depends on whether you or your spouse have “earned income” as defined by the Internal Revenue Service (IRS). Certain specific conditions related to this income or spousal situations determine eligibility and contribution limits for both Traditional and Roth IRAs.

Understanding Earned Income Requirements

For IRA contribution purposes, “earned income” is a specific classification by the IRS that includes compensation from employment or self-employment. This typically encompasses wages, salaries, tips, and other taxable employee pay. Net earnings from self-employment, after deducting business expenses, also qualify as earned income. Certain other income types may also count.

However, many common forms of income do not qualify as earned income for IRA contribution purposes. Examples of income not considered earned income include rental income, pension or annuity income, and investment income such as dividends, interest, or capital gains. Additionally, unemployment benefits, Social Security benefits, child support payments, and most disability income do not qualify as earned income. Deferred compensation and any income from property are also excluded from the definition of earned income for IRA contributions.

The amount of an individual’s earned income directly influences the maximum amount they can contribute to an IRA in a given tax year. This earned income requirement applies uniformly to both Traditional and Roth IRA contributions.

Spousal IRA Eligibility

A specific provision allows a spouse without earned income to contribute to an IRA through what is commonly known as a “spousal IRA.” This arrangement permits a working spouse with sufficient earned income to contribute to an IRA on behalf of their non-working or low-earning spouse. The couple must file a joint federal income tax return to utilize this provision.

The working spouse’s earned income must be at least equal to the total contributions made to both their own IRA and their spouse’s IRA for that tax year. The contribution limits for a spousal IRA are the same as those for regular IRA contributions.

The non-working spouse cannot have reached age 70.5 by the end of the tax year for Traditional IRA contributions, though this age limit does not apply to Roth IRA contributions. The spousal IRA can be established as either a Traditional or Roth IRA, depending on the couple’s adjusted gross income and their tax planning preferences. This option provides a valuable way for couples to save for retirement even if one spouse does not have their own earned income.

Opening Your IRA Account

To open an IRA, you will need to gather personal information and documentation. This typically includes your Social Security number, date of birth, and current contact information. You will also need to designate a beneficiary or beneficiaries for the account, providing their full names and Social Security numbers. You will also need your bank account and routing numbers to facilitate the initial funding of your IRA.

The next step involves selecting an IRA provider, which can include banks, brokerage firms, or mutual fund companies. You should compare providers based on factors such as account fees, the range of available investment options, and the quality of customer service. Many providers offer online application processes, while others may require paper forms.

Once you have chosen a provider, you will complete the application, either online or by mail, providing all the necessary personal and financial details. After the account is established, you can fund it through various methods, including electronic transfers from a linked bank account, mailing a check, or performing a rollover from another qualified retirement plan. The provider will guide you through the specific steps for funding your new IRA.