You’ve taken the step to invest for your future by opening a Roth individual retirement account (Roth IRA). Congratulations! Utilizing a Roth IRA is a smart financial move that can lead to significant tax savings in the long run. However, a question arises: Are you the only one allowed to contribute to your Roth IRA, or can others contribute on your behalf?
The answer is yes; other individuals can indeed make contributions to your Roth IRA. There are two specific types of Roth IRAs designed precisely for this purpose: the custodial Roth IRA and the spousal IRA. While both require you to have earned income to open the account, contributions can be made on your behalf.
How a Custodial Roth IRA Works
A custodial Roth IRA is a type of account established for a minor by a parent, legal guardian, or other qualified custodian. It allows the minor to accumulate retirement savings early in life, taking advantage of the potential for tax-free growth over time. The custodian manages the account until the minor reaches the age of majority, typically 18 or 21, depending on the state. At that point, the minor gains control of the account, and it continues to grow as a regular Roth IRA.
How a Spousal IRA Works
Spousal IRAs allow a working spouse to make contributions to an IRA on behalf of a non-working or low-earning spouse. To qualify, the couple must file a joint tax return, and the contributing spouse’s earned income must be equal to or greater than the total IRA contributions for both spouses. The contributions to the spousal IRA are considered as being made directly by the non-working spouse, thereby allowing them to build their retirement savings.
Can My Employer Put Money in My Roth Individual Retirement Account (Roth IRA)?
Employers are not permitted to contribute directly to an employee’s Roth IRA. However, they may offer a retirement plan, such as a 401(k) or a traditional IRA, which they can contribute to on the employee’s behalf. Employees can then decide to convert the contributions to their Roth IRA, subject to specific rules and tax implications.
Are Someone Else’s Contributions to My Roth IRA Limited?
While custodial Roth IRAs and spousal IRAs allow others to make contributions on your behalf, there are certain limitations to be aware of. The maximum contribution limit for a Roth IRA, whether for an individual, a minor in a custodial Roth IRA, or a non-working spouse in a spousal IRA, is based on the IRS annual contribution limits. As of 2021, the annual limit is $6,000, with an additional $1,000 catch-up contribution allowed for individuals aged 50 and above.
Can Someone Put Money in My Roth IRA on My Behalf?
Yes, someone else can contribute to your Roth IRA as long as it complies with the rules mentioned above. For custodial Roth IRAs, the custodian (parent, guardian, or qualified custodian) can make contributions on behalf of the minor. For spousal IRAs, a working spouse can contribute on behalf of a non-working or low-earning spouse. It’s important to note that the total combined contributions to all IRAs in your name, including any custodial or spousal IRAs, cannot exceed the annual contribution limits set by the IRS.
The Bottom Line
IRAs are primarily funded by the individuals who hold them. However, certain types of IRAs, such as custodial, spousal, or designated Roth IRAs, allow contributions from someone else as long as they do not exceed the predetermined limits. In such cases, it is permissible for another person to provide you with the funds to invest in your IRA.
