Retirement planning is an important part of any individual's financial life. Not only does it require money, but you also need to know your long-term goals. Ask yourself when you'd like to retire and consider how much money you'll need to maintain your lifestyle.
There are other considerations, such as whether you'll stop working completely or if you intend to supplement your retirement income with a part-time or freelance job.
The accounts you have during your retirement will also play into how you plan for that key point in your life. You may have regular interest-paying accounts like a savings account or a certificate of deposit (CD). And then there are special retirement accounts. For instance, you may participate in a 401(k) sponsored by your employer, fund your retirement account (IRA) on your own, or both. Learn how to continue funding your IRA after you retire.
Key Takeaways
- All retirees can contribute to traditional IRAs if they earn income, according to the SECURE Act of 2019.
- Retirees can continue to contribute earned funds to a Roth IRA indefinitely.
- Contributions cannot be made with unearned income, including money from capital gains, dividends, or investment interest.
- You cannot contribute an amount that exceeds your earnings, and you can only contribute up to the annual contribution limits set by the IRS.
- People with traditional IRAs must start taking required minimum distributions when they reach 73, beginning in 2023 (up from 72 for previous years). After Jan. 1, 2033, the age increases to 75.
Funding an Individual Retirement Account (IRA)
Whether you can continue to fund an IRA depends on whether you have any earned income after you retire. This includes wages, salaries, tips, bonuses, commissions, earnings from self-employment, long-term disability payments, and union strike benefits. Keep in mind that you cannot contribute anything from other sources, such as capital gains, dividends, or investment interest.
But remember, IRAs fall into two different general categories:
- The Traditional IRA: This account allows you to fund your account using pretax dollars. This lowers your annual income, thereby reducing your annual tax liability. The investments in your account are allowed to grow on a tax-deferred basis. You are not taxed until you begin taking distributions.
- The Roth IRA: Withdrawals from this account are tax-free, but the contributions are made with after-tax dollars.
Funding a Traditional IRA
Continuing to contribute to a traditional IRA is possible even if you're officially retired but still work or perform services of any sort that you're paid for and can document or report on your tax return.
Remember that earned income does not include certain forms of compensation, including those from a pension, an annuity, or Social Security. It also doesn't include investment income or earnings generated by assets. This means that the money you contribute has to be earned from work you're being paid to do.
Under the terms of the SECURE Act of 2019, all retirees can now contribute to traditional IRAs if they earn income. This means that the previous contribution cutoff age of 70½ no longer applies; however, traditional IRA holders must take required minimum distributions (RMDs) at age 73 (up from the previous age of 72).
No matter your age or employment status, you can never exceed the annual contribution limits set by the IRS for both IRAs. For 2023, the limit is $6,500 (up from $6,000 in 2022). If you’re 50 or over, it is $7,500 (up from $7,000 in 2022).
Funding a Roth IRA
A Roth IRA affords a lot more flexibility than a traditional one. No matter how old you are, you can continue to contribute to your Roth IRA as long as you’re earning income—whether you receive a salary as a staff employee or 1099 income for contract or freelance work. Conversely, you never have to take distributions from the account either.
Again, the deposits must be made with earned income: wages, fees, etc. So the $1,000 you got paid for a consulting job would be eligible, while your monthly $1,000 Social Security benefit isn't.
Of course, you aren't allowed to contribute more than the amount you have earned that year. Also, your modified adjusted gross income (MAGI) cannot exceed the annual income limits that dictate whether you can contribute to a Roth IRA at all—less than $228,000 (up from $214,000 in 2022) for married couples filing jointly but under $153,000 (up from $144,000 in 2022) for single taxpayers.
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The full retirement age for individuals born after 1960, at which point they can begin collecting full Social Security retirement benefits.
Advantages and Disadvantages
Funding an IRA during retirement has both benefits and drawbacks. And there's no hard-and-fast rule about whether it's a good idea. After all, it all depends on your financial situation, so it's up to you to decide whether contributing to your account after you retire is the right move for you.
Advantages
The main advantage of contributing to your IRA during retirement is that you'll be padding your nest egg. Doing so can allow you to save up a nice amount of money. If you play your cards right, you can accumulate some additional interest on this sum and have more down the road.
If you're disciplined enough, saving more may help you spend less during retirement. Setting aside and budgeting for your IRA contributions during retirement can help you cut down other expenses. Maybe you can reduce that daily coffee run to just once or twice a week or skip it altogether and put that money into your IRA for a few years.
If you choose to fund a traditional IRA, you can effectively lower your tax liability and put yourself into a lower tax bracket today. That's because these accounts are funded using pre-tax dollars. If you fund a Roth IRA after retirement, you can allow your savings to grow tax-free because you contribute after-tax money to it.
Disadvantages
One of the main cons of contributing to an IRA during retirement is affordability. You're probably on a fixed income, even if you still have wages coming in. But it may not be that much. Putting aside money when you have limited funds may end up eating away at your monthly budget, which means you may have to make some sacrifices.
Contributing also chips away at any emergency fund you can access. After all, you don't know what will happen in the future. Putting your money into an IRA when you've already retired may mean locking it in for a certain amount of time. You may be better off putting that money into a savings account or a CD—something easy to liquidate if you need it in a hurry or for an emergency.
Can You Open a New IRA If You Are Retired?
There is no age limit for opening an IRA, which means you can open an account even after you retire. Keep in mind that contributions can only come from earned income. You may also choose to transfer or roll funds over from an eligible retirement account you already have. There are also contribution limits that you must adhere to avoid being charged a penalty by the IRS.
Can You Continue Funding an IRA If You Are Retired?
You can contribute and continue funding an IRA after retirement. This applies to both Roth and traditional IRAs. Prior to the passing of the SECURE Act, individuals could not contribute to traditional IRAs after age 70½. There were and are no age restrictions to contributing to a Roth IRA. If you fund your IRA after retirement, you must keep the maximum contribution limits in mind. If you go over these limits, you will be charged a penalty of 6% on the overfunded amount until it is corrected.
Can You Contribute to a Roth IRA After Retirement?
Yes, you can contribute to a Roth IRA after you retire. You can only contribute earned income to the account, so you cannot set aside distributions from other retirement accounts, dividends, or interest income. You may contribute to your Roth IRA as long as you don't exceed the maximum annual contribution limits.
Can You Contribute to an IRA if You Are on Social Security?
Yes, you can continue contributing to an IRA even if you begin collecting Social Security benefits. But any money from your monthly benefits can't be contributed because Social Security isn't considered earned income. You can only contribute money to your IRA that you earn from a job.
The Bottom Line
Retirement planning is essential for anyone who wants to secure their financial future. You want to ensure that you're not struggling to keep up your lifestyle and standard of living. But what happens if you've already retired and no longer have any compensation? There is still a way that you can contribute.
If your spouse continues to work and has earned income, they can establish and fund a Roth IRA for you even if you're not actively working. This spousal Roth IRA must be in your name, even if your spouse is the one making the contributions.
FAQs
There is no age limit to contributing to an IRA, meaning that you can do so at any point in life. However, you can only contribute earned income to this account, not investment income. So even if you're technically retired you must be working in some form to make additional IRA contributions.
Can you put money in an IRA after you retire? ›
Can I contribute to a Roth IRA if I'm retired? Yes, you can, but only if you have taxable compensation. Roth IRAs were designed to help people save for retirement with the advantage of tax-free growth. So, they're really most useful as a way to invest for growth in the years before you retire.
Can I contribute to an IRA if I am collecting Social Security? ›
Yes, you certainly can contribute to an IRA, or if eligible, to a Roth IRA even if you are collecting Social Security benefits, said Jody D'Agostini, a certified financial planner with Equitable Advisors/The Falcon Financial Group in Morristown.
At what age should you stop contributing to an IRA? ›
Traditional IRAs: Although previous laws stopped traditional IRA contributions at age 70.5, you can now contribute at any age. However, required minimum distribution (RMD) rules still apply at 70.5 or 72 (73 in 2023), depending on when you were born.
Can I put money into a Roth IRA after I retire? ›
You can keep contributing to a Roth IRA after retirement, as long as you have some earned income. Roth IRA contributions aren't tax-deductible on an up-front basis.
Can you contribute to an IRA if you have no earned income? ›
Contributions. To contribute to a traditional IRA, you, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment.
What happens if you contribute to an IRA without earned income? ›
The IRS gets a little grumpy if you contribute to a Roth IRA without what it calls earned income. That usually means that you need a paying job—working for either someone else or your own business—to make Roth IRA contributions.
Who Cannot contribute to an IRA? ›
Who is eligible to contribute to a Traditional IRA? Anyone with an earned income and their spouses, if married and filing jointly, can contribute to a Traditional IRA. There is no age limit.
How do I get the $16728 Social Security bonus? ›
To acquire the full amount, you need to maximize your working life and begin collecting your check until age 70. Another way to maximize your check is by asking for a raise every two or three years. Moving companies throughout your career is another way to prove your worth, and generate more money.
Can you contribute to IRA after 72 if still working? ›
IRA contributions after age 70½
For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.
Regardless of your age, you will need to file a Form 1040 and show the amount of the IRA withdrawal. Since you took the withdrawal before you reached age 59 1/2, unless you met one of the exceptions, you will need to pay an additional 10% tax on early distributions on your Form 1040.
At what age does a Roth not make sense? ›
Key Takeaways. You're never too old to fund a Roth IRA. Opening a later-in-life Roth IRA means you don't have to worry about the early withdrawal penalty on earnings if you're 59½. No matter when you open a Roth IRA, you have to wait five years to withdraw the earnings tax-free.
Is a pension considered earned income? ›
Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits.
How does an IRA work when you retire? ›
An IRA, or individual retirement account, is an account for your retirement that enables you to delay paying taxes until the money is withdrawn. It's similar to a 401(k), but instead of the account being managed by your employer, this is an account you choose and manage yourself.
Should a retiree convert IRA to Roth? ›
By converting to a Roth IRA, you'll have assets that won't be taxed when withdrawn, potentially allowing you to better manage your tax brackets and enable more personalized tax planning during retirement. You have irregular income streams and lower than usual income this year.
Can I take money out of my Roth IRA if I have not invested it yet? ›
In general, you can withdraw your Roth IRA contributions at any time. But you can only pull the earnings out of a Roth IRA after age 59 1/2 and after owning the account for at least five years. Withdrawing that money earlier can trigger taxes and an 10% early withdrawal penalty.
What is the maximum amount you can invest in your IRA each year? ›
How much can I contribute? The most you can contribute to all of your traditional and Roth IRAs is the smaller of: For 2021, $6,000, or $7,000 if you're age 50 or older by the end of the year; or your taxable compensation for the year.
Can a 75 year old contribute to an IRA? ›
Anyone can make a traditional nondeductible IRA contribution, regardless of income or age.
Can I put money in an IRA if I don't have a job? ›
You usually need to have income from a job to contribute to an IRA. However, you can contribute to a spousal IRA on behalf of a nonworking spouse based on how much the working spouse makes. Although either spouse can contribute, a spousal IRA isn't a joint account.
Can you contribute to an IRA if you only have passive income? ›
Passive Income Cannot Be The Basis of Contribution
Retirement plan contributions can only be based on earned income subject to FICA and Medicare taxes.
Quick summary of IRA rules
- The maximum annual contribution limit is $6,500 in 2023 ($7,500 if age 50 and older). ...
- Contributions may be tax-deductible in the year they are made.
- Investments within the account grow tax-deferred.
- Withdrawals in retirement are taxed as ordinary income.
You must have worked and paid Social Security taxes in five of the last 10 years. If you also get a pension from a job where you didn't pay Social Security taxes (e.g., a civil service or teacher's pension), your Social Security benefit might be reduced.
How do I get the $16000 Social Security bonus? ›
How to Get a Social Security Bonus
- Option 1: Increase Your Earnings. Social Security benefits are based on your earnings. ...
- Option 2: Wait Until Age 70 to Claim Social Security Benefits. ...
- Option 3: Be Strategic With Spousal Benefits. ...
- Option 4: Make the Most of COLA Increases.
3 steps to claiming the $4,555 max monthly Social Security...
- Step 1: Work a minimum of 35 years. ...
- Step 2: Earn an income equivalent to or greater than the wage cap. ...
- Step 3: Delay your Social Security claim until age 70.
Most of our experts agree that one of the safest places to keep your money is in a savings account insured by the Federal Deposit Insurance Corporation (FDIC). “High-yield savings accounts are an excellent option for those looking to keep their retirement savings safe.
At what age is 401k withdrawal tax free? ›
The IRS allows penalty-free withdrawals from retirement accounts after age 59½ and requires withdrawals after age 72. (These are called required minimum distributions, or RMDs). There are some exceptions to these rules for 401(k) plans and other qualified plans.
At what age can you no longer contribute to a 401k? ›
This age 73 requirement applies to most retirement accounts, including traditional, SEP and SIMPLE IRAs, and qualified plans such as a 401k, 403b, and 457. Roth IRAs—and starting in 2024 Roth 401(k)s—are exempt. More on this below.
Which IRA is tax free when you retire? ›
Roth IRA or Roth 401(k) – Roth IRAs and Roth 401(k)s have tax-free qualified withdrawals at retirement since taxes are paid on contributions.
Which IRA is not taxed when you retire? ›
A traditional IRA is a way to save for retirement that gives you tax advantages. Generally, amounts in your traditional IRA (including earnings and gains) are not taxed until you take a distribution (withdrawal) from your IRA.
How do I avoid paying taxes on my IRA withdrawal? ›
If you have a Roth IRA, you can withdraw the money you contributed at any time as long as the account has been open for at least five years. You already paid the income taxes, so you won't owe more.
One key disadvantage: Roth IRA contributions are made with after-tax money, meaning there's no tax deduction in the contribution year. This five-year rule may make Roths less beneficial to open if you're already in late middle age.
Should I open an IRA with my bank? ›
Bank IRAs are ultra-safe investments. If you open one at a Federal Deposit Insurance Corporation (FDIC)-accredited institution, the funds you save in an IRA savings account or IRA CD receive deposit insurance up to the legal limit. Even if the bank were to fail, you wouldn't lose the funds saved in your IRA.
At what age is traditional IRA better than Roth? ›
With a Roth IRA, you contribute after-tax dollars, your money grows tax-free, and you can generally make tax- and penalty-free withdrawals after age 59½. With a Traditional IRA, you contribute pre- or after-tax dollars, your money grows tax-deferred, and withdrawals are taxed as current income after age 59½.
What income reduces Social Security benefits? ›
If you are younger than full retirement age and earn more than the yearly earnings limit, we may reduce your benefit amount. If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2023, that limit is $21,240.
How much can a retired person earn without paying taxes in 2023? ›
Earnings Test
If a working individual starts receiving Social Security payments before full retirement age, the Social Security Administration will deduct $1 in benefits for each $2 that person earns above an annual limit. In 2023, the income limit is $21,240.
What income does not count against Social Security? ›
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.
At what age can you no longer contribute to IRA? ›
Traditional IRAs: Although previous laws stopped traditional IRA contributions at age 70.5, you can now contribute at any age. However, required minimum distribution (RMD) rules still apply at 70.5 or 72 (73 in 2023), depending on when you were born.
How long can you leave money in an IRA? ›
With a Roth IRA, you can leave the money in for as long as you want, letting it grow and grow as you get older and older. The rules are similar for traditional 401(k)s and Roth 401(k)s. After you turn 70 ½, you must make required minimum withdrawals from a traditional 401(k).
How much does the average person have in their IRA at retirement? ›
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
Which IRA is not taxed when you retire and take the money? ›
A traditional IRA is a way to save for retirement that gives you tax advantages. Generally, amounts in your traditional IRA (including earnings and gains) are not taxed until you take a distribution (withdrawal) from your IRA.
If you roll your 401(k) money into an IRA, you'll avoid immediate taxes and your retirement savings will continue to grow tax-deferred. An IRA can also offer you more investment choices than most company 401(k) plans. You'll have more control over your money, with the ability to buy and sell any time you want.
