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How to contribute to a Roth IRA if you're retired

If you are retired and no longer working and your spouse has earned income for 2016, you very likely can put money in a Roth IRA using the working spouses’ income.

This is through the use of what is called a spousal Roth IRA, which simply means both spouses, if they qualify, can contribute to either a traditional or Roth IRA based on the earnings of just one spouse as long as you are filing taxes jointly.

There are some restrictions:

First you and your spouse need to fall within the income limitations for contributing to a Roth IRA for 2016.

The ability to contribute starts phasing out for married couples filing jointly when they're modified adjusted gross income reaches $184,000. It phases out completely at $194,000.

The working spouse needs to have enough earned income from wages or self-employment income to cover contributions made by both spouses. Investment income does not qualify to make contributions to a Roth.

Simply put, the spouses total combined contributions cannot exceed the taxable compensation of the spouse who is still working.

In 2016, as long as at least one spouse has $13,000 in earned income, you can contribute up to $6,500 to a Roth in the wife's name and up to $6,500 to the Roth in the husband’s name, assuming you're both 50 or older. For those under 50, the contribution limit is $5,500 apiece.

Also, unlike the traditional IRA, you can still buy a Roth after age 70½ as long as one spouse has earned income.

You have until April 17, 2017, to make contributions for the 2016 tax year.

Once you've made these contributions, you may want to consider maximizing the tax benefits by funding your Roth with investments that incur the biggest tax bill.

Some of the biggest culprits are taxable corporate bonds including high-yield taxable bonds. You're investment income is taxed at ordinary income tax brackets on these types of investments, which trigger the highest amount of tax.

Investments in Roth IRAs grow tax-free and earnings are not taxed on withdrawals provided you are at least 59 1/2 and your initial contribution is at least five years old.

If you make your first contribution now based on the 2016 tax year, the start date for your five-year countdown is Jan., 1st of 2016.

You might also consider opening a Roth with a small amount of money like $10 just to start the five-year countdown even if you are just thinking about contributing to a Roth.

Once you get past the five-year mark for your initial contribution, you never have to satisfy this requirement again for future contributions.

• Mike Piershale, ChFC® is President of Piershale Financial Group. If you have financial questions on this column contact us at Piershale Financial Group, Inc., 407 Congress Parkway, Crystal Lake, IL 60014. You may also email Mike@PiershaleFinancial.com

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