For some, adding to their IRA after retirement is a good idea.
You are retired.
Or maybe you are just planning for retirement.
Either way, it is good to know rules regarding IRAs after you retire.
As a recent Kiplinger article titled “Even Retirees Working Part-Time Can Contribute to a Roth IRA,” points out, you can continue to add to a Roth IRA.
There are some caveats.
You must still be earning income from a job—even a part time job.
There is a contribution limit.
How much?
You cannot contribute more than you earn in a year.
You can contribute up to $5,500 in 2016, if you are under 50 years of age.
If you are 50 years or older, you can contribute $6,500.
Can you make contributions on behalf of a spouse?
Using the same age guidelines, you can contribute up $5,500 or $6,500 into his or her Roth IRA if he or she does not work.
What does this mean?
To make the maximum contributions for both spouses, you will need to earn at least $13,000 in a year.
How do you determine your maximum contributions?
Add these following earnings together:
- Wages
- Commissions
- Bonuses
- Self-employment income
- Divorce alimony and maintenance payments
Exclude the following from your calculation:
- Pension
- Investment income
Why a Roth IRA?
Roth IRAs have no maximum contribution age.
Traditional IRAs require you to be under age 70 ½.
Can everyone qualify to make Roth IRA contributions?
No.
Although there is no age limit, there is an income limit.
What is it?
Your modified adjusted gross income must be less than $132,000 if you are single and $194,000 for married couples filing jointly.
Your contribution amount will be phased out if your income is above $184,000 for married individuals filing jointly and $117,000 for singled.
What is the modified adjusted gross income figure (MAGI)?
This figure is used to calculate whether you are qualified to contribute to a Roth.
It is not the same as the earned income figure.
The earned income figure calculated how much you can contribute.
When do you need to make the contribution?
Roth IRA contributions must be made by April 17, 2017 for the 2016 year.
What if you do not make enough money to make your full contributions?
Converting money from a traditional IRA to a Roth may be an option for you.
Why?
There are no maximum or minimum income limits when merely making a Roth conversion.
The downside?
You will need to pay taxes on the converted amount.
Every time?
Maybe.
If you made nondeductible contributions into your traditional IRA in the past, you will not need to pay taxes on this portion.
To determine what is best for your situation, work with your experienced estate planning attorney and financial planning team.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: Kiplinger’s (December 2016) “Even Retirees Working Part-Time Can Contribute to a Roth IRA”
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