Roth Contributions After 70.5
Roth individual retirement accounts let you put in after-tax dollars and take out tax-free qualified withdrawals -- which you can take after you've had a Roth IRA for five years and you're over 59 1/2. Unlike many other retirement plans, including traditional IRAs, there are no age limits with regard to who can contribute to a Roth IRA. However, that doesn't mean it's always in your best interests.
Compensation Still Required
To contribute to a Roth IRA at any age, including after you've hit 70 1/2, you must have compensation during the year. The Internal Revenue Code defines compensation as income earned from working or taxable alimony received, but not any unearned income like pensions, interest, dividends, gifts or capital gains. So, if you're not working anymore, unless you have some taxable alimony coming your way, you're not allowed to put money in your Roth IRA even though your age isn't specifically an issue.
MAGI Limits Apply
Your modified adjusted gross income must also fall under the annual limits for your filing status. Your MAGI includes all your income -- both your compensation and your other unearned income -- so you could find yourself excluded from contributing if you have only a little compensation but significant other income during the year, like a large pension or capital gains from investments. As of 2013, you're not allowed to make any contribution to a Roth IRA if you're single and your MAGI exceeds $127,000, or if you're married filing jointly and your MAGI exceeds $188,000.
Increased Contribution Limit
Any year that you're 50 or older -- and 70 1/2 certainly qualifies -- you're eligible for an increased Roth IRA contribution limit. As of 2013, it's an extra $1,000, which boosts your contribution limit from $5,500 to $6,500.However, you're still not allowed to contribute more than your total compensation for the year. So, if you only had, say, $4,000 in salary, you'd be limited to just a $4,000 contribution even if you had other income.
If you're thinking about opening a Roth IRA for the first time after turning 70 1/2, remember that you can't take qualified distributions for five years, counting from Jan. 1 of the tax year you make the first contribution, even though you're well over 59 1/2. You can still get your contributions out tax-free at any time, but any earnings taken out before the five years pass count as taxable income; you won't pay any tax penalties, though, because you're over 59 1/2. When you've satisfied the five-year rule, all your distributions, including earnings, come out tax-free.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."