Can I Invest in a Deferred IRA if I am Retired?

by Mike Parker

The U.S. Congress originally authorized Individual Retirement Accounts as a means of allowing certain taxpayers who were not covered by another qualified retirement to set aside a portion of their earnings in a tax-advantaged account for their retirement years. One significant benefit of Individual Retirement Accounts is the tax deferral on all earnings that occur inside the account. One significant stipulation of IRAs is that you can only contribute to them if you have earned income.

Traditional IRA

The benefits of a traditional Individual Retirement Account include tax deductibility of contributions and tax deferral of earnings. Most taxpayers can open and contribute to a traditional Individual Retirement Account, provided they are under the age of 70 1/2 and have income from compensation. The Internal Revenue Service considers compensation to be earned income from working. You can open or contribute to a traditional IRA even if you are retired from one position, provided you still have earned income.

Traditional IRA Considerations

You can contribute 100 percent of your earned income, up to $5,000 per year, into your traditional IRA as of the 2010 tax year, according to the Internal Revenue Service. The limit increases to $6,000 if you are older than 50 years. Your deductions for contributions to a traditional IRA may be reduced or eliminated if you or your spouse is covered by an employer retirement plan. You cannot continue to contribute to your traditional IRA once you reach age 70 1/2 years, even if you continue to earn income.

Roth IRA

You cannot take a tax deduction for contributions to a Roth Individual Retirement Account, but the earnings in the account grow tax-deferred. You can open and contribute to a Roth IRA as long as you have earned compensation and your modified adjusted gross income is below mandated levels. You can continue to contribute to your Roth IRA in any year that you have earned compensation, regardless of your age and regardless of whether you retired from another position.

Roth IRA Considerations

You can contribute 100 percent of your earned income, up to $5,000 per year, into your Roth Individual Retirement Account as of the 2010 tax year, according to the Internal Revenue Service. The limit increases to $6,000 if you are older than 50 years. The amount you may contribute to your Roth IRA may be reduced or eliminated if your modified adjusted gross income exceeded $167,000 for the 2010 tax year and you filed your taxes as Married Filing Jointly. Upper income limits vary for other filing statuses and other tax years. There is no mandatory age at which you must cease making contributions or start taking mandatory withdrawals.

About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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