Can I Contribute to Someone Else's IRA?

Individual retirement accounts (IRAs) allow workers to receive important tax breaks as they put aside money for retirement. Anyone can open and own an IRA, but can anyone contribute to an IRA?

You can contribute to your IRA or someone else's as long as the IRA owner receives taxable compensation during the year. Special contribution rules apply to spouses filing a joint return and to IRA owners participating in an employer retirement plan.

An IRA cannot receive an annual contribution greater than the owner's taxable compensation, even if someone else provides the contributed money. According to IRS Publication 590-A, only certain types of income count as taxable compensation for IRA purposes, including:

• Wages and salaries
• Commissions
• Self-employment income
• Taxable alimony and separate maintenance
• Nontaxable combat pay
• Taxable nontuition fellowships and stipend payments

You can't include property earnings, interest, dividends, deferred compensation, pension/annuity income, income from certain partnerships or any amounts you exclude from income.

Contributions to a traditional IRA are tax-deductible, but you must include withdrawals in your annual taxable income. You must begin taking required minimum distributions from your traditional IRA when you reach age ​72​. Withdrawals before age 59 1/2 may incur a ​10 percent​ penalty tax unless subject to an allowed exception.

As of 2022, an IRA owner can annually contribute the lesser of their taxable compensation or ​$6,000​ (​$7,000​ if 50 or older). This rule applies whether the IRA owner contributes their own money or uses money from someone else.

Joint-filing spouses can each open and contribute to their own IRAs but can't share the same IRA. Only one spouse needs taxable compensation. The maximum annual contribution for the spouse with less compensation is the lesser of:

• The ​$6,000​ (or ​$7,000​) cap
• The combined gross compensation of both spouses, reduced by the other spouse's IRA contribution for the year

Tax rules may prevent IRA owners from deducting their IRA contributions if they or their spouse participate in an employer retirement plan, such as a 401(k). The deduction is reduced or eliminated when the covered IRA owner's modified adjusted gross income (or combined MAGI for joint filers) exceeds specified thresholds.

Further, different thresholds apply if an employer retirement plan covers only your spouse. You must add Social Security benefits to your MAGI when comparing your income to the appropriate threshold.

So, who can make IRA contributions to a Roth account? As with contributions to a traditional IRA, someone other than the Roth owner can gift a Roth IRA contribution, and the same joint-filing spousal rules apply. Roth IRAs have the same contribution limits as traditional IRAs. However, the IRS says contributions may be reduced or eliminated if MAGI exceeds specified limits.

Contributions to a Roth IRA are not deductible. You can withdraw contributions at any time without taxes or penalties. However, withdrawals of earnings may be taxable and subject to the ​10 percent​ penalty tax if you are under age 59 1/2 and do not qualify for an exception or if the withdrawal occurred within ​five years​ of the year you first contributed to the Roth IRA.

Jerome, age 24, earned taxable compensation of $24,000 in 2022. He can legally contribute up to $6,000 to his traditional IRA but doesn't have the money to do so. His mother, Bernice, sends a $6,000 check to Jerome's IRA custodian as a gift contribution, carefully identifying Jerome's account. Jerome deducts the $6,000 from his taxable income when filing his tax return.

Jerome does not have to report the gift on his tax return. Bernice does not have to pay gift tax on the $6,000 because it is less than the annual exclusion (​$16,000​ per recipient as of 2022).