Can I Contribute to My Roth IRA After Retirement?

Who can contribute to a Roth IRA?

Roth IRA contributions are allowed without age limit as long as an older individual has earnings from employment and doesn’t exceed the earnings limit. The maximum contribution of $7,000 can be made for a worker over the age of 50 in 2019 ($6,000 plus the $1,000 catch-up contribution) if he or she has earned at least $7,000. For single taxpayers, a full contribution is allowed if modified adjusted gross income is less than $122,000, and the ability to contribute is phased out completely if MAGI exceeds $137,000.

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Who should not contribute to a Roth IRA?

The older worker who is behind with retirement savings, has a limited ability to save, and is likely to be in a lower tax bracket in retirement is often better off saving on a tax-deductible basis. This is the type of person who will benefit if Congress passes the law allowing workers older than age 70½ to contribute to a traditional IRA. Older workers today may still have an opportunity to save on a tax-deferred basis if they are working past age 70½ and work for an employer who has a 401(k) plan or if they are self-employed and want to establish a retirement plan for their business.

What are the rules for putting money in a Roth individual retirement account (Roth IRA)?

Most people who earn income will qualify for the maximum contribution of $6,000 in 2022, or $7,000 for those ages 50 and older. If your income falls within the Roth individual retirement account (Roth IRA) phaseout range, you can make a partial contribution. You can’t contribute at all if your modified adjusted gross income (MAGI) exceeds the limits.

Due date for IRA contributions

The last day to make your IRA contribution each year is the day your return is due for the year, not including extensions. You can mail your IRA contribution, and you’ll meet the deadline if it’s postmarked by the original due date for filing Form 1040.

Roth IRA rules

Roth IRAs are subject to the same rules as traditional IRAs. However, there are some exceptions:

  • You must designate the account as a Roth IRA when you start the account.
  • Earnings in a Roth account are tax-free rather than tax-deferred. You can’t deduct contributions to a Roth IRA. However, the withdrawals you make during retirement can be tax-free. They must be qualified distributions.
  • You can withdraw contributions at any time without tax or penalty.
  • You can continue to make contributions after you reach age 72. However, you must still receive taxable compensation.
  • You don’t have to begin taking withdrawals at age 72.
  • The balance in your account when you die generally goes to your heirs tax-free. The account has to have been open and contributed to for at least five years.

Who can contribute to a Roth IRA?

Higher-income people who actively participate in company retirement plans can’t deduct traditional IRA contributions. However, you can still contribute to save on a tax-deferred basis for retirement.

The amount you can contribute to a Roth IRA 2020:

  • Begins to phase out when your modified AGI reaches $124,000 if you are single or head of household, or $196,000 if married filing jointly
  • Is phased out completely when your income is more than $139,000 if you are single or head of household, or $206,000 if married filing jointly

These levels apply even if you’re not covered by a company pension plan.

Married couples filing separately can’t make Roth IRA contributions if both of these are true:

  • Your modified AGI is more than $10,000
  • You lived together at any time during the year

What are the contribution limits?

Generally, the contribution limit is $6,000 per year ($7,000 if you’re age 50 or older during the calendar year), or if less, your taxable compensation for the year but the ability to make Roth IRA contributions is subject to income limits. Roth IRAs were designed as a way to help people save money for retirement, because qualified distributions of the gains on the investments in the account would be federally tax-free later on. Anyone earning above a certain threshold faces limits on how much they can contribute. The amount is based on your MAGI and federal tax filing status. Note that this annual limit applies to your total contributions to both traditional and Roth IRAs for that year. To learn more, refer to the Annual Limits Guide (PDF).For purposes of the annual limit, “compensation” includes wages from employment or earned income from self-employment. Income from Social Security, pensions or investments doesn’t count. But earnings from a part-time or consulting job, for instance, would be included. Check with your tax advisor to see if your income would affect your eligibility to contribute to a Roth IRA.Generally, if you’re not earning any income, you can’t contribute to either a traditional or a Roth IRA. However, in some cases, married couples filing jointly may be able to make IRA contributions based on the taxable compensation reported on their joint return.

Roth IRA Withdrawal Rules

Unlike traditional IRAs, there are no required minimum distributions (RMDs) for Roth IRAs. You can take out your Roth IRA contributions at any time, for any reason, without owing any taxes or penalties.

Withdrawals on earnings work differently. In general, you can withdraw earnings without penalties or taxes as long as you are age 59½ or older and have owned the account for at least five years. This restriction is known as the five-year rule.

Your withdrawals may be subject to taxes and a 10% penalty, depending on your age and whether you meet the requirements of the five-year rule.

If you meet the five-year rule:

  • Younger than 59½: Earnings are subject to taxes and penalties. You may be able to avoid taxes and penalties if you use the money for a first-time home purchase or have a permanent disability. If you pass away, your beneficiary may be able to avoid taxes on the distribution.
  • 59½ or older: No taxes or penalties.

If you don’t meet the five-year rule:

  • Younger than 59½: Earnings are subject to taxes and penalties. You may be able to avoid the penalty (but not the taxes) if you use the money for specific purposes. They include first-time home purchases, qualified education expenses, unreimbursed medical expenses, and permanent disabilities. If you pass away, your beneficiary may be able to avoid penalties on the distribution.
  • 59½ or older: Earnings are subject to taxes but not penalties.

Before converting there are a few things to consider:

  • You cannot recharacterize. Understand your tax situation and ability to pay for the conversion because a Roth conversion cannot be recharacterized.
  • The availability of funds to pay income taxes. The benefits of a conversion are increased if the income taxes due can be paid out of non-retirement assets. 
    • To help manage your tax liability, you may choose to convert just a portion of your assets. There is no limit to the number of conversions you can do, so you may convert smaller amounts over several years.
  • Your time horizon. Generally, if you will need the funds within the next five years, a Roth IRA is not a good choice. This is because a five-year waiting period is required if you are under age 59 1/2 before you can distribute the converted amount without owing the 10% additional tax. The longer the assets in the Roth IRA can be left untouched, the greater the benefit of tax-free earnings potentially accumulating.

Know your limits

When you have earned income, you can contribute it to an IRA up to the maximum annual limit of $6,000 in 2022. If you’re 50 or older, you’re allowed to contribute an additional $1,000. If you have more than one IRA, the total contribution to all your IRAs can’t exceed the annual limit.

The Secure Act removed the age limit in which an individual can contribute to an IRA. As long as you are still working, there is no age limit to be able to contribute to a Traditional IRA. With Roth IRAs, you can contribute at any age as long as your earned income falls within the allowable income limits. If you are unsure of how much you can contribute, use our calculator.

Avoiding excise tax on excess contributions

Generally, a 6% excise tax applies to any excess contribution to a Roth IRA. However, any contribution that is withdrawn on or before the due date (including extensions) for filing a tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contribution are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made.

Roth IRA early withdrawal taxes

Since we’re talking about contributions, it’s important to note that anyone (of any age) who contributes to a Roth IRA can withdraw their contributions at any time without penalty. The key word here is contributions, though, since you cannot normally withdraw your earnings prior to age 59 ½ without paying a 10 percent early withdrawal penalty. Earnings can generally be withdrawn without penalties after age 59 ½ provided you meet the five-year rule.

Savers don’t need to do anything special to ensure that only the contributions are withdrawn since the IRS has rules that dictate which funds are removed from the account first. The IRS decrees that Roth IRA distributions are taken in this order:

  1. Contributions
  2. Conversions or rollover contributions
  3. Earnings on investments

These rules make it easier to withdraw your contributions without taxes or penalties.

Key Benefits:

Roth IRAs offer a number of potential advantages over Traditional IRAs. Traditional IRAs allow for tax-deferred growth of retirement assets, with taxes being due when distributions are taken. Distributions of Roth IRA earnings are tax-free, as long as the Roth IRA has been open for more than five years and you are at least age 59 1/2, or as a result of your death, disability or using the first-time homebuyer exception. Distributions may be subject to a 10% additional tax if taken prior to age 59 1/2. Other features include:

  • With a Roth IRA, unlike Traditional IRAs, you do not have to take required minimum distributions (RMDs) during your lifetime.
  • A Roth IRA can be used as an estate planning tool because the assets can be passed on tax-free to your beneficiaries.
  • Tax diversification of retirement assets allows for more flexibility to manage taxable income in retirement.

Making Roth IRA Withdrawals Before Retirement

With a traditional IRA, you’ll pay a penalty if you take withdrawals before you hit age 59.5. With a Roth IRA, though, you can withdraw your contributions at any time without paying a penalty. Keep in mind that you can only withdraw up to the amount you contributed. You can’t withdraw earnings until you hit 59.5. That means you’ll need to keep track of how much you contribute to your Roth account, or risk withdrawing too much and paying for it.

There are a few instances in which you can withdraw earnings without paying a penalty. You won’t pay a penalty if you’re withdrawing funds because of a disability. The IRS defines being disabled as being unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long continued and indefinite duration.

Other exceptions include:

  • If you die.
  • If you start a SEPP program.
  • Paying for medical expenses that account for more than 7.5% of your adjusted gross income (AGI).
  • Paying medical insurance premiums while receiving unemployment for more than 12 weeks.
  • Making your first purchase of a home.
  • Paying for qualifying higher education expenses.

How often should I contribute to an IRA?

Make it consistent. The other key is to make consistent contributions — even better to automate the process altogether (contact your HR department to set up automatic paycheck contributions or set up an automatic transfer from your bank). For one, this ensures you’re making saving a habit. But there’s an additional benefit, known as dollar-cost-averaging 

It works like this: If you want to max out your IRA, you could invest $6,000 all at once, or you could invest $500 each month. Investing in increments is one way to dull the psychological impact of market volatility because you aren’t watching a large sum of money potentially decline in value out of the gate. Dollar-cost averaging may also help you arrive at a better average price for your portfolio investments.

If you have the funds and can stomach a little volatility, a Northwestern Mutual analysis shows investing a lump sum all at once tends to outperform dollar-cost averaging over the long run. Regardless, it’s beneficial to develop a consistent investment strategy that works for you and makes it easier to participate in markets for the long term.

Roth IRA Contribution Limits (Tax year 2021)

Roth IRA Contribution Limits (Tax year 2020)
Single Filers (MAGI) Married Filing Jointly (MAGI) Married Filing Separately (MAGI) Maximum Contribution for individuals under age 50 Maximum Contribution for individuals age 50 and older
under $125,000  under $198,000  $0 $6,000 $7,000
$126,500  $199,000  $1,000 $5,400 $6,300
$128,000  $200,000  $2,000 $4,800 $5,600
$129,500  $201,000  $3,000 $4,200 $4,900
$131,000  $202,000  $4,000 $3,600 $4,200
$132,500  $203,000  $5,000 $3,000 $3,500
$134,000  $204,000  $6,000 $2,400 $2,800
$135,500  $205,000  $7,000 $1,800 $2,100
$137,000  $206,000  $8,000 $1,200 $1,400
$138,500  $207,000  $9,000 $600 $700
$140,000 & over  $208,000 & over  $10,000 & over $0 $0

What is the annual limit for Roth IRA contributions?

The annual limit for Roth IRA contributions is $6,000 for those under age 50 and $7,000 for those over 50 for 2022. You can also add to a Roth IRA by rolling over amounts from traditional IRAs or from other qualified retirement accounts such as a 401(k) or 403(b) plan. There is no limit to the amount that can be rolled over, but only one account can be rolled over each year. 

When can you withdraw earnings from a Roth IRA without penalty?

Pull your earnings out of a Roth IRA account too early and you may be subject to income taxes on those amounts as well as face a penalty amounting to another 10 percent, except in certain situations. We already mentioned how you can take up to $10,000 out of a Roth IRA account without penalty early for the purchase of your first home, if you become disabled, or if the distribution is made to your estate after you pass away.

You can also avoid the 10 percent penalty (but not the taxes) for an early withdrawal if:

  • You’re using the funds to pay qualified higher education expenses for yourself or eligible family members.
  • You’re using the funds to reimburse yourself for medical expenses that exceed 10 percent of your adjusted gross income.
  • You need to use the funds to cover health insurance premiums in the event you become unemployed.
  • You agree to accept substantially equal periodic payments for five years or until you become age 59 ½, whichever happens last.
  • An IRS levy has been made against your plan.

Those are the main exceptions, but the IRS offers still other ways to avoid the penalty.

Eligibility for saver’s tax credit

Individuals who contribute to a Roth IRA with modified adjusted gross income (AGI) below certain levels for the year may be eligible to claim a saver’s tax credit for their contributions. The AGI eligibility levels for 2017 are:

  • $62,000 for married couples filing jointly,
  • $46,500 for heads of household, and
  • $31,000 for singles and married individuals filing separately

These modified AGI thresholds may be adjusted in later years to reflect cost-of-living increases.

Individuals must also be age 18 or older, not a full-time student, and not be claimed as a dependent on another tax return to be eligible for the Saver’s Tax Credit.

Eligible individuals can take the tax credit by filing Form 8880 with their tax return or working with a tax preparer. The chart below shows the amount of the saver’s credit for different kinds of filers for 2017:

Married Filing Jointly

$0-$37,000

50% of first $2,000 deferred by each spouse

$37,001-$40,000

20% of first $2,000 deferred by each spouse

$40,001-$62,000 10% of first $2,000 deferred by each spouse

Contribution Rules for Spousal Roth IRAs

The exception to the taxable compensation rule is if your spouse is still earning enough to cover the $7,000 contribution limit. With a spousal Roth IRA, the IRS allows people who earn less than their spouse to contribute the maximum they would be allowed using the joint income reported on the tax return. 

Let’s say you are retired and make no income, but your spouse is still working part-time making $25,000 per year. You’re both over 50, so your maximum annual contributions would be a total of $14,000.

If your spouse makes a $7,000 contribution to their IRA, you would calculate the amount that you can contribute by deducting that contribution amount from the joint income. In this case, $25,000 – $7,000 = $18,000 is greater than your limit of $7,000, so you’d be able to make the full contribution. 

Tips for Saving for Retirement

  • A financial advisor can help you determine the best route to reach your retirement goals. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Before you start contributing to an IRA, max out any employer matches offered through your 401(k). In every sense of the word, employer matching is free money, so don’t pass it up.

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