Financial Advice For What To Do With IRA After Retirement - Assets.net (2024)

Retirement can be daunting for many individuals, especially regarding their Individual Retirement Accounts (IRA).

Managing IRA finances is incredibly important and must be diligently tended to ensure financial growth.

After retirement, understanding the different processes and restrictions associated with post-retirement contributions can provide tremendous wealth advantages if handled correctly.

This blog post will cover the benefits of both Roth and Traditional IRAs and summarize the details of all potential post-tax scenarios.

We also provide sage advice on navigating the complex investment world after account conversion upon retirement age.

Arm yourself with the knowledge to ensure you reap maximum rewards from all future investments while working towards a fruitful retirement!

Is It Possible To Contribute To Your IRA After Retirement?

Yes, you can contribute to an IRA even after retirement, providing you with some form of “earned income.”

In other words, retired individuals can contribute to their retirement accounts if they actively earn money from a job or self-employment activities.

However, they must possess the earned income the Internal Revenue Service (IRS) requires.

Gaining income from employment is likely to involve working part-time or full-time and receiving wages, salaries, or bonuses. Income derived from dividends, interest payments, or Social Security does not count as earned income.

If you and your spouse are both retired, they can still contribute to their retirement account (IRA).

Additionally, your spouse may make a special spousal contribution to your IRA.

This contribution is available for those who are not actively earning income but have a working partner.

A spousal contribution enables couples to increase the amount contributed to retirement accounts, thus providing additional savings to ensure financial security later.

Before 2019, people over 70 ½ could not add money to traditional IRAs, but the SECURE Act changed that.

Anyone of any age can contribute to a traditional or Roth IRA.

According to Ilene Davis, a certified financial planner from Cocoa, Florida, and author of “Wealthy by Choice: Choosing Your Way to a Wealthier Future,” having more for the future without detrimentally affecting one’s current lifestyle is rarely an undesirable option.

Post-Retirement IRA Contribution Limits

Throughout your life, you can contribute up to 100 percent of your earned income or $6,000 (in 2022) for those under 50, whichever is lower.

This contribution limit stays the same during retirement. People aged 50 and over can put in an extra $1,000, increasing their total contribution limit to $7,000.

You can contribute up to the maximum amount of your annual earnings toward a traditional or Roth Individual Retirement Account (IRA).

This is because the limit for contributions to an IRA, regardless of whether it is a traditional or Roth version, equals the income you have earned in any given year.

As such, you must know your total income when considering how much you should allocate toward your retirement savings each year.

For instance, if your salary from a part-time job were $3,000 during the year, your allowable contribution limit would also be $3,000.

This means that regardless of whether you choose a Traditional or Roth IRA account, the amount you can contribute will remain the same.

Pros

• Savings boost – After you have retired, putting money into an IRA is a great way to build up your savings and be prepared for any medical costs that might come up in the future, such as end-of-life care or other healthcare bills. This strategy can help guarantee you have enough money to cover any unforeseen medical bills that may come your way.
• Tax benefits – Contributing to a traditional IRA can greatly reduce your current income tax bill since you can receive an immediate deduction. Furthermore, this type of account allows the investments inside it to accumulate and grow without being subject to taxation until they are withdrawn. Therefore, contributing to a traditional IRA provides the dual benefit of lowering your tax burden while allowing assets within the account to benefit from potential tax-deferred growth. Contributing to a Roth IRA won’t offer an upfront tax break, but when it’s time to withdraw, the earnings will be exempt from taxes if you’ve kept the account open for at least five years.
• Investment flexibility – An Individual Retirement Account (IRA) offers significantly more investment options than a typical workplace retirement savings plan, such as a 401(k). With an IRA, you can choose from a wider range of investments tailored to your needs and goals. This expanded flexibility allows you to create a retirement portfolio designed for your financial objectives.

Cons

• Less to live on –If you retire and start living on a fixed income, investing in an IRA can leave you with less money to use immediately. This cannot be easy, as it will mean sacrificing some of your comfort for future security. Nevertheless, setting aside money in an IRA could be crucial to maintaining financial stability later in life.
• Potential risk – Investments and Mutual funds typically held in IRAs, such as stock funds or individual stocks, may not be suitable for someone who has already retired. Investing your IRA contributions in the stock market can be risky since stocks are known for their volatility; thus, if you anticipate needing to use the funds within the next five years, it is best to avoid this option.
• Less liquidity – Obtaining funds from an IRA quickly can be challenging. Before transferring the money, you must sell investments and wait for the trade to settle. Investing the contribution into a money-market fund that provides easy access may be advantageous.

If you have the financial ability, investing in an IRA during retirement can be hugely advantageous as it allows for tax-deferred savings.

This is particularly beneficial for those who may live longer than average, as they will receive more of a return on their investment.

However, this option would not make sense if you cannot afford it.

Ken Hevert, the business leader for digital products and customer experience at Fidelity Investments, recommends saving as much as possible for retirement to have a larger nest egg when you begin spending money.

Roth Vs. Traditional IRA

Whether to contribute to a Roth or traditional IRA depends on your tax circ*mstances.

Hevert favors the Roth due to no need for a minimum distribution or RMD. This allows the funds to stay in growth mode during retirement and be used later or passed down as part of an inheritance.

Some advisors believe there is not much benefit in contributing to a traditional IRA on a pretax basis, as the tax deduction it provides is only temporary.

Richard E. Reyes, a certified financial planner at Wealth and Business Planning Group in Maitland, Florida, suggests that contributing to a traditional IRA could be beneficial if you are still employed and looking to save money on taxes.

What To Do With IRA After Retirement

In conclusion, deciding what to do with an IRA after retirement can be tricky and daunting.

However, various options are available depending on individual needs and financial objectives. It is important to remember that financial advice should always be sought before making big decisions.

By understanding the various retirement opportunities IRAs offer, retirees can be better prepared to determine their best action.

Additionally, budgeting and maintaining strong financial habits during retirement are essential to guarantee a sustained quality of life.

Retirement may seem intimidating at first, but with diligent planning, smart budgeting, and up-to-date investment goals, it is possible for a secure and rewarding future post-retirement.