By: D. Laverne O'Neal | Reviewed by: Ryan co*ckerham, CISI Capital Markets and Corporate Finance | Updated January 28, 2019
Whether due to financial need, internal drive or out of boredom, many workers continue to earn money even after they retire. Some people plan their work lives to retire as early as age 60, and others may find themselves "retiring" earlier than expected because of job loss. . IRS regarding traditional and Roth IRAs differ. Whether you can open an account after retirement depends on which type of account you want.
You are eligible to open an IRA if you are retired. That being said, you can no longer contribute to a traditional IRA once you reach the age of 70 1/2.
Exploring Earned Income
The Internal Revenue Service restricts individual retirement account ownership to those with earned income. Social Security, pension, annuity and disability payments do not qualify under IRS rules. Investment income does not qualify either. Wages, commissions, salaries and tips, in addition to taxable military pay and alimony, are considered earned income.
Assessing the IRA Contribution Limit
After age 50, you can put no more than $6,500 per year in your IRA(s). As regards contributions, the IRS sees all IRAs as one IRA. So if you have two IRAs, you can, for example, contribute $4,000 to one and $2,500 to the other. In addition, you can contribute no more than you earn. If you earn only $3,000 doing part-time work after retirement, for example, you can contribute only $3,000 that year.
Evaluating Traditional IRA Rules
You can neither open nor contribute to a traditional IRA after you reach 70 1/2. This is also the age at which you must start taking distributions from a traditional IRA.At age 59 1/2, you can begin taking penalty-free withdrawals from a traditional IRA. If you retire, for example, at age 60, you can open an account and never have to worry about the 10 percent early distribution penalty when you take money out of the account.
On the other hand, because of the age 70 1/2 rule, you will have only 10.5 years to contribute to the account. As traditional IRA contributions are tax-deductible, funding the account even over such a short term may be worthwhile.
Roth IRA Contributions
You can contribute to a Roth at any age. There are income limits to Roth IRA contributions, which for 2018 are $120,000 for single people and $189,000 for married couples filing jointly to make a full contribution. Single people with an adjusted gross income of $135,000 may make partial contributions, as can married couples filing jointly with an AGI of up to $199,000. With a Roth IRA, you do not ever have to withdraw any money.
If you do wish to make a withdrawal, however, as long as you have reached age 59 1/2, you can take both principal and earnings tax- and penalty-free. There are penalty-free exceptions to early withdrawal, as long as the account has been open at least five years. These include college education funding, up to $10,000 for first-home purchase, and unreimbursed medical expenses totaling more than 10 percent of your AGI.
The Roth IRA becomes a flexible savings and investment account during your retirement years. After you die, the account can pass to your heirs, who can take yearly distributions over their respective lifetimes. Roth IRA contributions are not tax-deductible.
FAQs
You can open and contribute to an IRA at any age as long as you have earned income. If you earn too much, your contributions to a Roth IRA are reduced or eliminated. If you or a spouse contribute to an employer's retirement plan, you may not be allowed to deduct some or all of your contribution to a traditional IRA.
Can you open an IRA if you are on Social Security? ›
You can take the money you earn from your job and put it into an IRA. What you can't do, however, is use your Social Security benefits to fund your IRA. IRA contributions have to come from earned income.
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. For tax years beginning after 2019, there is no age limit to contribute to a traditional IRA.
Can I open an IRA account if I am not working? ›
1. A nonworking spouse can open and contribute to an IRA. A non-wage-earning spouse can save for retirement too. Provided the other spouse is working and the couple files a joint federal income tax return, the nonworking spouse can open and contribute to their own traditional or Roth IRA.
Can I open a Roth IRA if I'm retired? ›
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.
Who Cannot open an IRA? ›
Anyone can open a traditional IRA but if you (or your spouse if you're married) contributes to a retirement plan at work, then there are income limits that might restrict your ability to deduct your IRA contribution. $68,000 or less in 2022. $73,000 or less in 2023.
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.
How much can a retired person contribute to an IRA? ›
IRA contribution limits are the same during retirement as they are the rest of your life. You can contribute up to 100 percent of your earned income or $6,000 (in 2022) for people under age 50, whichever is less. Those age 50 or older can contribute an additional $1,000 as a catch-up contribution for a total of $7,000.
At what age do you not have to pay taxes on an IRA? ›
You can withdraw earnings without penalties or taxes as long as you're 59½ or older and have had a Roth IRA account for at least five years.
Does Social Security count as income? ›
You must pay taxes on up to 85% of your Social Security benefits if you file a: Federal tax return as an “individual” and your “combined income” exceeds $25,000. Joint return, and you and your spouse have “combined income” of more than $32,000.
For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs. For 2019, if you're 70 ½ or older, you can't make a regular contribution to a traditional IRA.
Is a pension considered earned income? ›
Earned income also includes net earnings from self-employment. Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits.
Do I need a job for a traditional IRA? ›
While generally you must have earned income to be able to contribute to a traditional IRA, there is an exception for nonworking spouses. In this case, a working spouse can fund a "spousal IRA'' for the nonworking spouse. Say the husband works outside the home, while the wife is at home taking care of the kids.
How does an IRA work when you retire? ›
A traditional IRA lets you defer taxes now and pay them when you withdraw the money for your retirement. If you suspect you'll be in a lower tax bracket in retirement, a traditional IRA can save you money in the long run. It includes some special penalty-free withdrawals for certain purchases.
Should a retired person convert to a Roth IRA? ›
Overall, converting to a Roth IRA might give you greater flexibility in managing RMDs and potentially cut your tax bill in retirement, but be sure to consult a qualified tax advisor and financial planner before making the move, and work with a tax advisor each year if you choose to put into action a multi-year ...
Who Cannot open a Roth IRA? ›
If your earned income is too high, you cannot contribute at all. Modified AGI (MAGI) income limits on Roth IRA contributions for the 2023 tax year are $153,000 ($144,000 in 2022) for single filers and $228,000 ($214,000 in 2022) for married couples filing jointly.
How much can I withdraw from my IRA while on Social Security? ›
The important thing to understand here, though, is that even though distributions from IRAs can increase your taxable income, they're never counted for purposes of benefit forfeiture. As a result, you can withdraw as much as you want from traditional or Roth IRAs without jeopardizing your monthly benefit checks.
At what age do you have to 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.
