Whether a retiree can continue to fund an individual retirement account (IRA) primarily depends on if they have any sort of earned income.

Key Takeaways

  • Under the terms of the SECURE Act of 2019, all retirees can now contribute to traditional IRAs if they earn income.
  • Retirees can continue to contribute earned funds to a Roth IRA indefinitely.
  • You cannot contribute an amount that exceeds your earnings, and you can only contribute up to the annual IRS-set contribution limits.

Funding a Traditional IRA

Continuing to contribute to a traditional IRA is possible even if you're officially retired—but still work or perform services of any sort that you're paid for (and can document or report on your tax return.

What doesn't count as earned income? Earned income does not include compensation from a pension, an annuity, or Social Security. It also doesn't include investment income or earnings generated by assets. The money has to be earned from the sweat of your brow, so to speak.

Under the terms of the SECURE Act of 2019, all retirees can now contribute to traditional IRAs if they earn income. The previous contribution cutoff age of 70½ no longer applies. However, holders of traditional IRAs must start taking required minimum distributions (RMDs) at age 72. Also, note that if you were born before July 1, 1949, you must still begin taking RMDs at age 70½.

No matter what your age or employment status, you can never exceed the annual contribution limits set by the IRS for both types of IRAs; for 2020 and 2021, it's $6,000 a year, or $7,000 if you’re age 50 or over.

Funding a Roth IRA

A Roth IRA affords a lot more flexibility. No matter how old you are, you can continue to contribute to your Roth IRA as long as you’re earning income—whether you receive a salary as a staff employee or 1099 income for contract or freelance work. On the flip side, you never have to take distributions from the account either.

Again, the deposits must be made with earned income: wages, fees, etc. So the $1,000 you got paid for a consulting job would be eligible, while your monthly $1,000 Social Security benefit would not be. Of course, you can never contribute more than the amount you have earned that year. Also, your modified adjusted gross income (MAGI) cannot exceed the general, annual income limits that affect whether you can contribute to a Roth IRA at all—less than $208,000 for married couples filing jointly, but under $140,000 for single taxpayers.

Here is a consideration for married couples—if you've retired and have no compensation anymore, but your spouse continues to work. If your spouse has earned income and you don't, they can establish and fund a Roth IRA for you. This spousal Roth IRA must be in your name even if your spouse is the one making the contributions.