Can I Open an IRA If I'm Retired?

by D. Laverne O'Neal

    Whether due to financial need, internal drive or out of boredom, many workers continue to earn money even after they retire. In addition, some plan their work lives to retire as early as age 60. The Internal Revenue Service restricts individual retirement account ownership to those with earned income. The rules regarding traditional and Roth IRAs differ. Whether you can open an account after retirement depends on which type of account you want.

    IRAs must be funded with earned income. Social Security, pension, annuity and disability payments do not qualify under IRS rules. Investment income does not qualify either. Wages, commissions, salaries and tips, in addition to taxable military pay and alimony, are considered earned income.

    After age 50, you can put no more than $6,000 per year in your IRA(s). As regards contributions, the IRS sees all IRAs as one IRA. So if you have two IRAs, you can, for example, contribute $4,000 to one and $2,000 to the other. In addition, you can contribute no more than you earn. If you earn only $3,000 doing part-time work after retirement, for example, you can contribute only $3,000 that year.

    You can neither open nor contribute to a traditional IRA after you reach 70 1/2. This is also the age at which you must start taking distributions from a traditional IRA.

    At age 59 1/2, you can begin taking penalty-free withdrawals from a traditional IRA. If you retire, for example, at age 60, you can open an account and never have to worry about the 10 percent early distribution penalty when you take money out of the account. On the other hand, because of the age 70 1/2 rule, you will have only 10 years to contribute to the account. As traditional IRA contributions are tax-deductible, funding the account even over such a short term may be worthwhile.

    You can contribute to a Roth at any age. Moreover, you do not ever have to withdraw any money. If you do wish to make a withdrawal, however, as long as you have reached age 59 1/2, you can take both principal and earnings tax- and penalty-free. The Roth IRA then becomes a flexible savings and investment account during your retirement years. After you die, the account can pass to your heirs, who can take yearly distributions over their respective lifetimes. Roth IRA contributions are not tax-deductible.

    About the Author

    D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.

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