Can I Open a Roth IRA If I Am Not Working?

Even if you're not working, you can open a Roth IRA account. Although you can't make a direct contribution to a Roth without earned income, you can convert a traditional IRA, 401(k) or similar retirement account into a Roth. If you're already retired, or if you're temporarily unemployed or experiencing a substantial short-term drop in income, now might be a good time to convert some retirement assets into a Roth. However, before you make such a move, make sure the consequences prove beneficial to your retirement strategy or estate plan.

You can make contributions to a Roth IRA only with compensation income, which includes earnings from an employer, self-employment income and alimony. So if you haven't worked all year, you probably won't be able to open a Roth IRA with a regular contribution, regardless of your total modified adjusted gross income through other sources, such as interest, dividends and capital gains.

Anyone can convert a Traditional IRA or 401(k) account fully or partially to a Roth account. You do not have to be eligible for a regular contribution to open a Roth IRA through a conversion.

Making a conversion to a Roth will not affect your eligibility to make regular Roth contributions. In addition, there are no income or earnings restrictions for contributions to a traditional IRA, so you can contribute to a traditional IRA and immediately convert it to a Roth IRA.

You must pay taxes at your ordinary rate for any amount that you convert. You do not pay taxes on any non-deductible contributions you have made, but you don't have the option of converting non-deductible contributions first or exclusively. The conversion must be in proportion to the taxable and nontaxable assets in all your traditional IRA accounts.

Another reason to own a Roth: No required minimum distributions. You must begin taking required minimum distributions from a Traditional IRA or a 401(k) on April 1 of the year after you turn ​72​. You never have to take a distribution from a Roth.

You can withdraw regular contributions tax-free at any time, and you can withdraw converted amounts tax-free immediately if you're over ​59½​. But if you're under ​59½​, you'll pay a 10 percent early-withdrawal penalty if you withdraw converted amounts before ​Jan. 1​ of the fifth year after your conversion. Tax-free distributions on your earnings can begin only ​five years​ after you've opened the Roth account and you are ​59½​ or qualify for a distribution because you are disabled.

You can continue contributing to a Roth – or converting into your Roth account – until you die. Continuing to convert assets in your traditional IRA or your 401(k) also will reduce the size of your required minimum distribution.

Converting a tax-deferred account to a Roth provides your beneficiaries with favorable tax status. Your beneficiaries will pay taxes at their ordinary tax rates on distributions from tax-deferred accounts, but the withdrawals can be made tax-free from a Roth. In addition, any required minimum distributions you avoid will allow you to leave more assets in your tax-free account.