Too Old for an IRA? You Can Still Be Tax-Smart

9.9.16If you are working after 70 ½, there are still ways to save money tax-free.

Wage earners are not permitted to put money into a traditional IRA in the year they turn 70 ½ according to the Kiplinger article, “Tax-Smart Ways to Save When You're Too Old for a Traditional IRA.” But you would still be able to contribute to a Roth IRA, as long as your income in 2016 is less than $132,000 if single or $194,000 if married and file taxes jointly. In addition to the money growing tax-free in the Roth IRA with no time limit, you don’t have to take any RMDs (required minimum distributions).

You can contribute up to the amount you earned for the year (your net income from self-employment), with a maximum of $6,500—that’s $5,500 for everyone under age 50, plus $1,000 for people age 50 and older. If your earnings are well over the $6,500 maximum, you can just contribute that amount. However, if your earnings are near or under the maximum, you’ll need to know what is considered compensation and how to calculate your allowed contribution.

For that information, see IRS Publication 590, Individual Retirement Arrangements. It notes that starting in 2015, you can make just one rollover from an IRA to another (or the same) IRA in any one-year period—regardless of the number of IRAs you own.

You can continue to make unlimited trustee-to-trustee transfers between IRAs because it is not considered a rollover. In addition, you can also make as many rollovers from a traditional IRA to a Roth IRA (known as “conversions”).

If you’re self-employed, you can contribute to a solo 401(k), deduct your contribution now, and defer taxes on the money until it’s withdrawn. However, since you’re over age 70½, you are required to take required minimum distributions from the solo 401(k).

Still working as an employee at age 70½? You don’t have to take an RMD from your 401(k) plan, unless you own 5% or more of the company. If you own 5% or more or 100% of the company, you do have to take RMDs.

For additional information on IRAs, retirement and asset protection in Houston, please visit our website.

Reference: Kiplinger (August 19, 2016) “Tax-Smart Ways to Save When You're Too Old for a Traditional IRA”

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