Contributing to an IRA After Retirement

by | Apr 5, 2016 | IRA's

One of our clients had a question a while back: Can a retired person keep contributing to an IRA? Take a moment and learn about the logistics of contributing to an IRA after retirement.

Can a retired person keep contributing to an IRA?

There are many types of Individual Retirement Accounts (IRAs), but they all exist to help you save for retirement. Once you’ve reached retirement though, can you keep contributing to your IRA?

Yes and no. If you are earning a salary based on work you are doing, then you can contribute to an IRA account. This is because you generated earned income. Earned income includes wages earned by working for yourself or wages earned by working for someone else. The IRS describes earned income as earnings from self-employment, wages, salaries, tips, union strike benefits, and long-term disability benefits that are received prior to retirement. The amount of earned income you create affects the maximum amount you can contribute to your IRA account. You cannot contribute more than your earned income if your earned income is less than your maximum contribution. The maximum you can contribute is $5,500 if you are under 50 and $6,500 if you are over 50.

Not everyone works for themselves or others to generate income. You may generate unearned income through interest, dividends, investment income, pensions, and social security. Unearned income may not contribute to an IRA account. While you may financially depend on unearned income, you cannot contribute to an IRA in a year when you have only that type of income.

There are exceptions to these rules. If you are married, you can take advantage of a Spousal IRA. This IRA account aims to help save for retirement by allowing a working spouse to contribute to a nonworking spouse’s IRA account. As long as the working spouse has a high enough earned income, he or she can contribute equal maximums into both IRA accounts.

All in all, working for wages allows you to generate earned income and contribute to an IRA account. If your income comes from alternative sources other than work, it generally cannot be used to contribute to an IRA account.

Read more about IRAs using these links:

6 IRA Planning Tips

7 IRA Planning Traps to Consider

Other IRA articles here…