IRA Rules for Contributing Money After Retirement

Save
Retirees must follow IRS rules carefully when contributing to an IRA.
Retirees must follow IRS rules carefully when contributing to an IRA. (Image: money in hand image by Bruce MacQueen from Fotolia.com)

During retirement, many investors look for ways to decrease their taxable income and shelter money from taxes. Because Traditional IRAs are not subject to tax until money is withdrawn and Roth IRAs allow for money to be removed tax free, both are attractive shelters for investments that are distributing unspent and taxable dividends. Retirees have to carefully follow IRS rules to make sure they’re eligible to contribute to an IRA.

Contribution Amount

People may contribute only up to a certain maximum each year. Persons over age 50 are also allowed to make “catch up” contributions. This amount changes nearly annually, so check the IRS Web site for the current year’s maximum. In 2010, individuals are allowed to contribute $5,000 to a Traditional or Roth IRA and an additional $1,000 if over age 50, unless they met very specific exceptions for bankrupt companies with 401(k)s or military service.

IRA contribution ceilings change nearly every year.
IRA contribution ceilings change nearly every year. (Image: Gazebo Ceiling image by Cathy Kovarik from Fotolia.com)

Income Limit

People must have taxable employment compensation equal to their contribution amount. This does not include income from investments, property, annuities or pensions, or deferred compensation. People who have fully retired and have no taxable compensation cannot contribute to an IRA, unless they have a spouse who earned enough taxable compensation to either make a contribution for both spouses or to an individual IRA for either partner.

You must have compensation to contribute to an IRA.
You must have compensation to contribute to an IRA. (Image: man working on PDA image by jimcox40 from Fotolia.com)

Spouses

Spouses without income whose spouse earns enough to contribute for both or to either partner’s IRA may make a contribution. If a working spouse cannot deduct an IRA because of Social Security income or because he or she is eligible for a qualified workplace retirement plan such as a 401(k), the nonworking spouse may still be able to deduct an IRA as long as the working spouse’s income doesn’t fall beyond maximum limits. These amounts are adjusted for inflation, so check the IRS Web site for current year’s maximum income limit. In 2010, married couples filing jointly must have income below $166,000 to qualify for a full deduction.

Retired spouses may be able to contribute to an IRA.
Retired spouses may be able to contribute to an IRA. (Image: Old couple image by cegli from Fotolia.com)

Deductibility

Deducting your IRA depends on compensation, taxable Social Security, and eligibility for workplace retirement plans, such as a 401(k). Each year, the IRS places a cap on the amount of compensation you may earn and still deduct a Traditional IRA. Check the IRS Web site for current numbers. The IRS provides a worksheet to determine how much you may deduct if you receive Social Security.

Social Security payments may affect your ability to deduct an IRA.
Social Security payments may affect your ability to deduct an IRA. (Image: a hand dropping a coin into a smiling piggy bank image by T.Tulic from Fotolia.com)

Maximum Age

People may contribute to a Roth IRA at any age. To make a Traditional IRA contribution, you must be under age 70 ½. You’ll begin required minimum distributions at this age in a Traditional IRA.

Anyone age 70 1/2  and older may not contribute to a Traditional IRA.
Anyone age 70 1/2 and older may not contribute to a Traditional IRA. (Image: happy birthday image by Ewe Degiampietro from Fotolia.com)

Related Searches

References

Promoted By Zergnet

Comments

You May Also Like

Related Searches

Check It Out

4 Credit Myths That Are Absolutely False

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!