Unemployment Under Roth IRA Rules

Your Roth IRA will continue earning even during periods of unemployment.

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The Roth IRA offers a smart way to save for retirement. Although contributions are not tax-deductible as with a traditional IRA, withdrawals are tax-free, once you reach 59 1/2 years of age, and it's been at least five years since the IRA was started. If you are unemployed, whether or not you can add to your IRA may depend on whether your spouse is working. In addition, you can benefit from a useful exception to the early-withdrawal rules.


The rules regarding eligibility for IRA contributions take into account your current employment status. If you are unemployed, you will not be able to contribute unless you are married and your spouse meets specific income requirements.

Earned Income Requirement

IRS rules impose a contribution limit on traditional as well as Roth IRAs. In years 2015 - 2018 that limit, which is a combined maximum for all the IRAs you own, reached $5,500 per year, with an additional "catch-up" contribution of $1,000 allowed for people aged 50 and above.

If you earn less than the contribution limit, then the most you can contribute is your taxable compensation for the year. If you are unemployed and don't earn any compensation, you won't be able to make a contribution to your Roth IRA. The IRS does not count as income unemployment compensation or other public benefits such as Social Security disability and workers' compensation.

Spousal Contributions

Although the rules state you must earn taxable compensation to open or contribute to an IRA, if you are married, your spouse can contribute to an IRA for you, even while you are unemployed, provided there is enough income. However, the amount you can contribute to a Roth phases out at certain income levels.

Even though you may be unemployed, if you are married filing jointly, it's your combined income that will determine the amount you can contribute. The maximum contribution begins to phase out at a modified adjusted gross income greater than or equal to $186,000 , as of 2018. At $196,000 or above of joint income, and you may not contribute to a Roth at all.

IRA Conversions

There is no limit on the amount of money you can "rollover" from one IRA account to a new one. However, because the IRS does not allow deductible contributions to a Roth, rolling money from a traditional IRA to a Roth is taxable. You must add the amount converted to your income for the year. This rule makes converting in a low-income year a good option.

If you are unemployed, then the tax rate on any income you generate will probably be lower. In the case of a relatively small IRA conversion, there may be no tax to pay at all on a rollover after deductions, exemptions and credits.

Early Withdrawal Exceptions

An early withdrawal of part or all of your Roth usually incurs a 10 percent penalty. In addition, you may owe taxes on amounts attributable to investment income. The IRS waives the 10 percent penalty if you are unemployed and use the money to pay health insurance premiums for yourself as well as your spouse and dependents.

You must have lost your job – not quit; you must take the withdrawal in the year you receive unemployment compensation for at least 12 weeks or the following year and you can't take the withdrawal more than 60 days after finding new employment.