IRA Contributions During Retirement

Here are a couple of common questions those over 65 ask about IRA’s. Can I contribute to an IRA or a Roth IRA? When I start taking required minimum distributions (RMD) can I reinvest some or all of it back to IRA or Roth IRA?

If you have earned income you can contribute the lower of your earned income or $7,000 (if you are over 50). The key is what type of income you are receiving. For example, income received from Social Security, portfolio income, annuity payments, required minimum distributions or a pension, is not considered earned income. In addition, rental income, for most people, is considered passive income – again not earned income.

However, if you are either self-employed or employed (in other words you have earned income), you can still contribute to an IRA — with a few caveats. First your contribution cannot exceed the amount of earned income or $7,000 (for someone over 50). However, once you turn 70 1/2, you can only contribute to a Roth IRA. Contributions to a traditional IRA would not be allowed.

As an additional complicating factor, there are income limits to IRA contributions. If you are making a traditional IRA contribution (and are therefore below 70 ½), you may or may not be able to deduct your IRA contribution – depending on your level of adjusted gross income (AGI). Similarly, you may or may not be able to make a Roth IRA contribution – based on your AGI.

Yes, this is complicated. After all, the IRS and Congress was involved in creating the rules.