Contributions to the Roth IRA are made after taxes. Contributing to a Roth account (if you qualify) may be a good idea, even if your contribution is reduced due to your income. However, you can still contribute to a Roth IRA and make cumulative contributions to a Roth or traditional IRA, regardless of your age. If you file a joint return, a non-working spouse can open a traditional or Roth IRA if the couple's combined contributions don't exceed (if both are old or older).
Finally, keep in mind that if you invest in both a Roth IRA and a traditional IRA, the total amount of money you contribute to both accounts cannot exceed the annual limit. In addition, participating in a qualified retirement plan has no influence on your eligibility to make contributions to the Roth IRA. You may be able to get around income limits by converting a traditional IRA to a Roth IRA, which is called a clandestine Roth IRA. Roths can also provide valuable tax diversification during retirement and can be a great way to balance other sources of income, such as withdrawals from a 401 (k) or Roth IRA and Social Security payments.
You can open a Roth IRA through a bank, brokerage agency, investment fund, or insurance company, and you can invest your retirement money in stocks, bonds, mutual funds, exchange-traded funds, and other approved investments. A couple must file a joint tax return for the spousal IRA to work, and the contributing partner must have sufficient earned income from work to cover both contributions. The five-year Roth IRA rule states that you can't withdraw your earnings tax-free until at least five years after you've first contributed to a Roth IRA. The incentive to contribute to a Roth IRA is to generate savings for the future and not get a current tax deduction.
Every year you make a contribution to the Roth IRA, the custodian or trustee will send you Form 5498 with information about IRA contributions. Contributions that exceed the annual Roth IRA limits may result in a penalty from the IRS that could easily wipe out any investment income. While not tax-deductible, contributions to a Roth IRA provide you with an opportunity to create a tax-free savings account. One way to get around the income limit of a Roth IRA is to create a clandestine Roth IRA, which involves putting money into a traditional IRA and then converting the account into a Roth IRA.
