Roth IRA Eligibility

• You are not prohibited from opening a Roth IRA or contributing to an existing one while receiving unemployment benefits. As long as you meet the eligibility requirements for a Roth IRA, you can open or contribute to an account. Specifically, you must have earned income for the tax year in which you make your contribution, and the contribution amount cannot exceed your income. Certain income limits apply, however, as noted in the next section.
  
  

Roth IRA Income Limits

• Roth IRA income limits are more lenient than those for traditional IRAs. The maximum you may contribute to any combination of Roth IRA or traditional IRA accounts, as of 2011, is $5,000. An additional contribution of up to $1,000 can be made by taxpayers age 50 and older. In 2011, this limit begins to phase out when single tax filers reach an income of $107,000 and phases out completely with a modified adjusted gross income of $122,000. For taxpayers filing a joint return, that limit begins to phase out at a modified adjusted gross income of $169,000 and phases out completely with a joint income of $179,000. However, if you are receiving unemployment benefits, you annual income may not approach those limits, and these income limits may not apply to you.
  
  

Conversions

• If your income has been reduced by unemployment, and you have an account balance in a traditional IRA, 401k or other tax-deferred retirement plan, you may wish to consider executing a rollover into a Roth IRA. You would pay income taxes on the amount you rollover. But if your income from work is reduced, you may benefit from having to pay a lower tax rate on the rollover than you would if you were working or when you withdraw money during retirement. You may wish to consult a tax adviser for advice on your particular situation.
  
  

Alternatives

• If you do not qualify for a Roth IRA because of income limitations, you may be able to contribute to a traditional IRA if you or your spouse is not covered by a retirement plan at work. You also may be able to contribute to a traditional IRA on a nondeductible basis, fund a permanent life insurance policy to supplement your retirement savings (life insurance cash values are taxed similarly to Roth IRAs, provided the policy is not a modified endowment contract) or purchase one or more annuities, which also provide tax-deferred growth.