IRA Contribution Rules When You Have No Income

If you regularly listen to the Money Girl podcast or read my transcripts, you know that I’m a huge fan of retirement accounts. There are different types of accounts you may qualify for depending on where you work, whether you have self-employment income, and how much you earn.

If you’ve assumed that you can only contribute to a retirement account if you work for a big company or have a cushy job, that’s dead wrong! Don’t miss the opportunity to save efficiently by using one or more tax-advantaged retirement accounts.

If you’ve assumed that you can only contribute to a retirement account if you work for a big company or have a cushy job, that’s dead wrong!

This post will explain the rules for using an IRA when you have no income. Maybe you’re unemployed, taking a sabbatical, caring for a child or loved one at home, or not working for any other reason. You may be surprised by the flexibility an IRA offers even when you don’t earn money for a short or long period.

What is an IRA?

Let’s start with a primer on IRAs or Individual Retirement Accounts. A fundamental concept to understand about an IRA (or any retirement account, for that matter) is that the account isn’t an investment. A retirement account is like your house or apartment—it’s a shelter that protects you. Similarly, a retirement account is a shelter that protects investments you own inside the account, such as stocks, bonds, exchange-traded funds (ETFs), mutual funds, and CDs.

A traditional IRA is available to anyone who’s younger than age 72 and has some amount of earned income from a job, business, or even from your spouse if you don't work and you file taxes jointly. More about the spousal IRA in a moment.

For 2021, you can contribute an amount equal to your earned income up to $6,000. However, if you’re over age 50, you can make an additional “catch up” contribution of $1,000, for a total of $7,000.

To keep learning about the power of retirment accounts, check out 4 Penalty-Free Ways to Use a Roth IRA Before Retirement.

What are the benefits of a traditional IRA?

If you, or a spouse, don’t have a retirement plan at work, such as a 401(...

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