Dear Dr. Don,
My wife will retire at 62. I will continue to work for five years until I'm 66. I will continue contributing to my 403(b) and Roth IRA. Can my wife contribute to her Roth IRA even though she'll be retired and drawing both a pension and Social Security?
-- Ronald Roths
Dear Ronald,
After trying to find just the right nugget of information from the IRS Web site to answer your question, I found myself leaning on the good fools at the Motley Fool for help with your question.
Their article "All About IRAs: The Top 10 Roth IRA Questions" had this to say about your wife's retirement contributions to a Roth IRA:
I'm retired and drawing Social Security. Can I contribute part of my Social Security benefits to a Roth IRA account?
Nope. Sorry. In order to make a Roth IRA contribution, you must have earned compensation. Earned compensation is generally income that you receive through work as payment for your labor in one form or another. It's reported to you on a W-2 form, or you file Schedule C (Business Income) with your normal tax return. Earned compensation generally does not include Social Security benefits, pensions, interest, dividends, rental income, or capital gains.
Your wife has to have taxable compensation to continue contributing to her Roth IRA. The pension and Social Security benefits are not considered taxable compensation for the purpose of establishing contribution limits.
However, you may be able to contribute to a spousal Roth IRA on her behalf. Here's what IRS Publication 590, Individual Retirement Arrangements, says about it:
Can you contribute to a Roth IRA for your spouse?
You can contribute to a Roth IRA for your spouse provided the contributions satisfy the spousal IRA limit discussed in Chapter 1 under "How Much Can Be Contributed," you file jointly, and your modified AGI is less than $166,000.
That modified adjusted gross income limit is for the 2007 tax year. The 2008 MAGI limit is $169,000 for joint filers, although the contribution limit starts to phase out at $159,000.
Contribution limits after the contributor has attained age 50 are slightly higher ($6,000) than for those who have not yet reached that age ($5,000).
Check with your tax adviser if you are not sure about what is and isn't taxable compensation.