If you didn't get any workers' compensation, but you still made a contribution to your IRA, the amount you contributed will be subject to a 6 percent penalty for excessive contributions. The penalty tax will be applied every year that the excess contribution remains in your IRA. A spouse who doesn't earn a salary can also save for retirement. As long as the other spouse works and the couple files a joint federal income tax return, the non-working spouse can open and contribute to their own traditional or Roth IRA.
A spouse who doesn't work can contribute to a spousal IRA just as much as the family's salaried employee. The email address cannot exceed 100 characters. You have successfully subscribed to the weekly Fidelity Viewpoints email. You should start receiving the email within 7 to 10 business days.
Fidelity Brokerage Services LLC, member of NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917.This so-called spousal IRA is just like any other Roth IRA, except that it's your spouse's income that determines whether you qualify for a Roth IRA based on maximum income limits. Initial tax relief is one of the main things that differentiate the rules of traditional IRAs from Roth IRAs, in which taxes are not allowed to be deducted for contributions. Keep in mind that, once the account has been transferred, the new account owner can withdraw assets from the account whenever they want, so be sure to inform your child about the benefits of allowing them to grow over time and about the rules governing Roth IRAs. This is due to an IRS rule that calculates your tax liability based on all the assets in your traditional IRA, not just the after-tax contributions to a non-deductible IRA that you created specifically to convert it into a Roth.
If you don't have other traditional IRA assets, the only tax you'll owe will be on account earnings, if any, between the time of the contribution and the conversion. To keep things simple, think of all IRAs in your name (except inherited IRAs) as if they were a single account. This type of account is managed by an adult until the child reaches the appropriate age to transfer the account to a regular Roth IRA account in their name. IRA contribution calculator Answer a few questions to find out if a Roth or traditional IRA might be right for you.
The SEP IRA is similar to a traditional IRA in that contributions may be tax-deductible, but the SEP IRA has a much higher contribution limit. While the traditional IRA shares many features with its newer sister, the Roth IRA offers tax incentives to save for retirement and, under certain circumstances, each of them is governed by a different set of rules. It's possible to open a traditional IRA and make non-deductible contributions, which aren't restricted by income, and then convert those assets into a Roth IRA.