The tax incentives for Roth individual retirement accounts aren't always apparent at first because you don't get a tax deduction for your contributions. But, once the money is in the Roth IRA, it grows tax-free and your qualified distributions -- including all of the earnings in the account -- come out tax-free. If you file a joint return, both spouses may be eligible to contribute even if the wife doesn't work.
If a couple files a joint return, the IRS allows the nonworking spouse to use the working spouse's compensation to contribute to a Roth IRA. The contribution limit for the nonworking spouse then becomes the smaller of the standard contribution limit or the working spouse's compensation minus his IRA contributions for the year. For example, in 2013 the maximum IRA contribution is $6,500 if you're over 50. If the husband has $12,000 of compensation and puts $6,500 in his Roth IRA, the wife could only put in $5,500 in her Roth IRA. But, if the husband has $13,000 or more in earned income, the he can contribute the full $6,500 to his wife's IRA.
The wife's modified adjusted gross income must also fall below the annual limits in order for her husband to contribute to her IRA. When you file jointly, your modified adjusted gross income includes all the income from both spouses. The income limits adjust annually and include a phaseout range. If the MAGI falls in the phaseout range, the contribution limit is decreased, but not eliminated. If the MAGI is above the phaseout range, the wife can't contribute to a Roth IRA. For example, in 2013, the phaseout range goes from $178,000 to $188,000, so if your joint income is any higher, you're not allowed to contribute to a Roth IRA.
Separate Contribution Limits
Just because you and your spouse are sharing compensation doesn't mean you have to share contribution limits. Instead, each spouse is permitted to contribute up to the maximum contribution because they are separate people. For example, assuming the other criteria are met, both a husband and a nonworking spouse could make a full contribution. For example, in 2013 if you're both over 50, you could each contribute $6,500 for a total of $13,000.
If the husband and wife don't file a joint return, the wife can still contribute if she has her own compensation. But, the IRS doesn't care which dollars are used to contribute to the Roth IRA. For example, suppose the wife has $2,000 of compensation for the year. If she uses that $2,000 for groceries, her husband can give her $2,000 to put in her Roth IRA. However, both spouses have a reduced contribution limit because the MAGI phaseout range runs from $0 to $10,000 for married filing jointly taxpayers.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."