Can I contribute $2000 from my savings account into my Roth IRA if I earn less than the $2000 per year as a college student?

[Guest eatfiber]

Can I contribute $2000 from my savings account into my Roth IRA if I earn less than the $2000 per year as a college student?

I understand that the current rule states: "Each taxable year, you may make a cash contribution to your Roth IRA in an amount equal to your annual compensation or an annual limit, whichever is less."

What happens if I stop working while in college? However, I have enough money in my savings account to contribute $2000 per year for the next 8 years. Does the rule limit my contributions to a Roth IRA to the amount that I earn each year? Applying the rule, if I decide not to work during college, I am not allowed to contribute into my Roth IRA.

Thanks!

Kelly

[John G]

Simple answer to your first Q is NO.

No earned income, no Roth eligiblity. When you have some earned income, the cap on contributions in any given year is either: the amount of your earned income OR the maximum allowed for your age and filing status, whichever is lower. Qualification to contribute is determined for each calander year... so while you might qualify in 2004, it says nothing about your qualification in 2005 or later years.

Examples:

You have $1500 as earned income in 2004, then you can contribute $1500 to a Roth in 2004.

You have $4400 earned income in 2004, then you can contribute only $3,000 (because you have no "make-up" qualifications if you are in the 20s).

Your SPOUSE has income in 2004 but you do not, then total combined contributions to the two Roths can not exceed $6,000 (max $3,000 each) only if her income exceeds $6,000. There are no rules governing how you divided up the contributions as long as you don't exceed total earned income and each account does not exceed $3,000.

Earned income is most often "payroll" but can include self employment income from odd jobs like babysitting, mowing lawns, shoveling snow, painting houses, etc.