Can I contribute to my IRA after retirement?

Should you fund your retirement even after you retire? The idea may seem counterintuitive, but for retirees still working part-time, continuing to seed an individual retirement account (IRA) can ensure that they have enough money to enjoy retirement long into the future and even enjoy a tax break today.

Here’s what you should know about contributing to an IRA after you’re retired.

Can you contribute to your IRA after retirement?

Yes, you can contribute to an IRA after you’re retired, but you’ll need to have some amount of “earned income” in order to do so. Earned income comes in the form of salaries, wages, tips or bonuses, so you’ll likely need to have at least some kind of part-time work. Income from things such as dividends, interest or Social Security does not qualify as earned income.

In addition, if you are retired and your spouse has earned income, he or she can contribute to their own IRA and also make what is called a spousal contribution to your IRA.

Prior to the passage of the SECURE Act in 2019, contributions to traditional IRAs were banned beyond age 70 ½, but that is no longer an issue. You can now contribute to a traditional or Roth IRA no matter your age.

“If it doesn’t harm the current lifestyle, having extra for the future is seldom a bad thing,” says Ilene Davis, a certified financial planner in Cocoa, Florida, and author of “Wealthy by Choice: Choosing Your Way to a Wealthier Future.”

Post-retirement IRA contribution limits

IRA contribution limits are the same during retirement as they are the rest of your life. You can contribute up to 100 percent of your earned income or $7,000 (in 2024) for people under age 50, whichever is less. Those age 50 or older can contribute an additional $1,000 as a catch-up contribution for a total of $8,000.

For example, say you earned $3,000 working a part-time job during the year. Your IRA contribution would be limited to $3,000 because that was all you had in earned income. The limits are the same whether you’re contributing to a traditional or Roth IRA.

Pros

• Savings boost: Contributing to an IRA after you’ve retired will give your nest egg a savings boost and could help pay for things such as end-of-life care or other healthcare expenses down the road.
• Tax benefits: Contributions to a traditional IRA may get you an immediate tax deduction, allowing you to lower your current tax bill. You’ll also get the benefit of tax-deferred growth on your investments held in the IRA. Roth IRA contributions won’t get an immediate tax deduction, but withdrawals will ultimately be tax-free as long as you’ve held the account for at least 5 years.
• Investment flexibility: You’ll have more flexibility on the types of investments you can hold within an IRA compared to a typical workplace retirement plan such as a 401(k).

Cons

• Less to live on: If you’re retired, you’re likely living on a fixed income. Contributing to an IRA will mean you have less money to live on today.
• Potential risk: The types of investments typically held in IRAs, such as individual stocks or stock funds, may not be appropriate for someone who has already retired. Stocks come with volatility, so don’t invest your IRA contributions in the stock market if you think you’ll need the money to live on in the next 5 years.
• Required minimum distributions: If you’re above the age when you have to take required minimum distributions (RMD) from your IRA, you’ll have to take them even as you’re adding contributions. It may end up feeling like you’re trying to fill up a bucket that has a massive leak in it. However, Roth IRAs do not have a required minimum distribution.

It doesn’t make sense to invest in an IRA in retirement if you can’t afford it. But if you can afford it, saving more money in tax-deferred accounts is beneficial, especially if you live a long time.

“It’s always optimal to save more for retirement so that you have more savings as you spend money through retirement,” says Ken Hevert, who is the head of client engagement at Fidelity Investments.

Roth vs. traditional IRA

Whether to use a Roth or a traditional IRA for those your contributions depends on your tax situation. Hevert favors the Roth because there is no RMD, so funds can continue to grow throughout retirement and can be tapped later in retirement or left to heirs in an estate.

When contributing to a traditional IRA on a pretax basis, you get the benefit of an upfront tax deduction. But some advisors don’t see the point of this strategy since the benefit is temporary.

“There could be some benefit to contributing to a traditional IRA if you are trying to save some dollars in taxes and you are still working,” says Richard E. Reyes, a certified financial planner at Wealth and Business Planning Group in Maitland, Florida. “But I don’t really find that too appealing because it will be taxed shortly when you begin taking distributions.”

The best brokers for IRAs can help you set up an IRA at any age, and help you navigate the process of contributing money and taking the right distributions.

Read Bankrate’s brokerage reviews to find the right brokerage for you.