Can You Still Fund A Retirement Account Once You Retire?
Retirement accounts allow your savings to grow tax-deferred, but the rules change when you turn age 70 ½. At 70 ½, traditional IRAs require the owner to take required minimum withdrawals and you can’t contribute any more savings. But you can still continue to put money into other types of retirement accounts, including Roth IRAs and some types of 401(k)s, as long as you have earnings from jobs.
Here are some things to consider:
- You can contribute to more than one IRA. It’s possible to have a traditional IRA, one or more 401(k)s and a Roth IRA or Roth 401(k). You can contribute to as many as you want but the total you may contribute is limited to a maximum amount that is adjusted annually and the type of account.
- Age doesn’t matter for contributions to Roth IRAs. Regardless of your age, if you have earned wages you can contribute to a Roth IRA. While the contributions to a Roth will not lower your income for tax purposes, the money you put in will grow tax deferred without any required minimum distributions. And distributions from a Roth won’t subject your Social Security benefits to taxation.
- Age doesn’t matter for contributions to some types of 401(k)s. Regardless of age, you can continue to contribute to a traditional 401(k) as long as you own less than 5% of the business you are working for. You aren’t required to take required minimum withdrawals.
- Plan your withdrawals to boost your Social Security benefits. While you want to allow your retirement savings to grow tax-deferred as long as you can, withdrawing money from an IRA earlier is sometimes to your advantage. Doing so may help you delay starting Social Security benefits, allowing your benefits to grow 8% for every year you wait after attaining age 66 and until age 70.
- Take minimum required distributions on time. Once you turn age 70 ½, everyone with a traditional IRA must begin taking required minimum distributions. Failure to do so results in a tax penalty equal to 50% of the required distribution amount.
To help make the right saving and distribution decisions, get professional advice from professional financial advisors.
Highly recommended reading: “How To Make Your Money Last, The Indispensible Retirement Guide,” Jane Bryant Quinn, January, 2016.