Question: I am retired, but I work part-time. Can I contribute to a Roth IRA? How much can I contribute if I just earned a few thousand dollars this year?
Answer: As long as you have earned income from a job, you can make contributions to a Roth IRA. You can contribute up to the amount of your earned income for the year, with a $5,500 maximum for 2016 (or $6,500 if you’re 50 or older). If you work and your spouse does not, you can even contribute up to $5,500 (or $6,500) to a spousal Roth IRA on his or her behalf – as long as your total contributions for both accounts don’t exceed the amount you earned from working. That means your earned income for the year would need to be at least $13,000 if you’re 50 or older and want to contribute the maximum for yourself and your spouse.
To calculate your maximum contribution, include your earnings from working (such as wages, commissions, bonuses and self-employment income). Alimony and maintenance payments through a divorce are also included in the earned income calculation for determining Roth IRA contributions, says Keith McGurrin, a certified financial planner with T. Rowe Price. Pension and investment income, on the other hand, does not count.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
There’s no maximum age for contributing to a Roth IRA (you must be under age 70½ to contribute to a traditional IRA). To qualify to make Roth contributions in 2016, your modified adjusted gross income must be below $132,000 if you’re single or $194,000 if you’re married filing jointly (the contribution amount starts to phase out if your income is more than $117,000 if single or $184,000 if married filing jointly). That “modified adjusted gross income” figure to determine if you earn too much to contribute to a Roth is calculated differently than the earned income figure used to determine how much you can contribute. See IRS Publication 590-A for the full calculation.
You have until April 17, 2017, to contribute to a Roth IRA for 2016. For more information about the benefits of a Roth IRA, see Why You Need a Roth IRA.
Retirees who want Roth IRA benefits but earn too little to make the full contribution may want to convert money from a traditional IRA to a Roth, says McGurrin. There are no minimum or maximum income limits for Roth conversions; you just need to pay taxes on the converted amount (or on a portion of the converted amount, if you made some nondeductible contributions through the years). See Rules for Converting Money From a Traditional IRA to a Roth for more information.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
How to Manage Risk With Diversification"Don't put all your eggs in one basket" means different things to different investors. Here's how to manage your risk with portfolio diversification.
-
Getting Out of an RMD Penaltyretirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
Make the Most of the New Military Retirement Plan
retirement The government is offering a new retirement option so that service members who leave the military before qualifying for a pension can still receive some benefits.
-
How Changes in Income Affect Medicare Premiums
Medicare Medicare beneficiaries can see their premiums go up if their income rises, although for some that increase will be only temporary.
