Roth IRA Requirements

• As of 2011, to contribute to a Roth IRA, you do not need to owe taxes; you need to have earned income for the year, according to Internal Revenue Service Publication 590. Earned income is money you receive for services you perform, such as the wages you earn at your job. Your earned income must be equal to, or greater than, the amount that you contribute to your Roth IRA. For example, if your annual contribution limit is $5,000, but you only have $3,900 in earned income, the most you can only contribute to your Roth IRA is $3,900.
  
  

Earnings Without Taxes?

• It is possible to have earned income without owing any federal income taxes, or even without have having to file an income tax return. You do not have to file an income tax return just because you are contributing to a Roth IRA, according to Fairmark. If your income exceeds the filing threshold for the year, however, you must file a tax return. The threshold changes each year and varies by filing status. For example, you might have less income than the standard deduction and the personal exemption, in which case your taxable income for the year would be zero. In addition, you may lower your tax liability through income tax credits, such as the American opportunity or lifetime learning credits, which, as of 2011, offer tax credits for post-secondary education costs, according to the IRS.
  
  

Benefits

• Contributing to a Roth IRA in a year that you owe zero taxes guarantees that you are better off putting the money in a Roth IRA than a traditional IRA because you currently fall in the zero percent tax bracket. Even if you owe no taxes when you take the withdrawal, you will break even. However, you will reap significant savings if you fall in a higher tax bracket at retirement because all the contributions and earnings from a Roth IRA come out tax-free when you are 59 1/2 and the account has been open for five tax years.
  
  

Considerations

• If you do not owe any taxes, but still contribute to a Roth IRA, it is likely that, as of 2011, your adjusted gross income will be low enough to qualify you for the retirement savings credit. In order to claim this credit, you must file a tax return. However, this credit is non-refundable, meaning that it will not lower your tax liability below zero, so if you have no other refundable credits, it will not affect your tax liability, according to the IRS. However, if your tax liability is zero because you claimed some refundable tax credits, you will be able to receive a refund if you claim the retirement savings credit as well.